Tuesday, May 11, 2010

Major Euro Short Squeeze Looming?

Well! That was exciting...if you are a Gold Bug. Contrary to popular hope, recent World financial developments are NOT good news for the global financial system. Insolvency is the word of the hour, and this TRUTH can no longer be hidden from the masses.

Look, it's simple. We've have been lead to believe that this entire global financial crisis, since it was unleashed upon us, is the result of a "lack of liquidity" in the system.

This is pure BULLSHIT!

This GLOBAL FINANCIAL CRISIS is all about insolvency. Insolvency that is the result of too much debt. Too much debt that can not be repaid because of squandered liquidity used to pyramid that bad debt.

First, the big banks here in the USA blew up, so the Fed stuffed them full of monopoly money, and declared them solvent. When in fact they still held BILLIONS in bad debt on their books or in quarantine at the Federal Reserve.

Now, entire countries are blowing up because of bad debt that has been pyramided to levels that can never be repaid. And the answer is "stuff them full of monopoly money", and quarantine the debt.

Next, entire states here in America are going to blow up...again because of too much debt that has been pyramided exponentially with derivatives in the hopes the debt will never have to actually be repaid.

IT'S THE DEBT STOOPID! Borrowing money to pay off borrowed money has never gotten anybody to the penthouse. This is plain old fashioned foolish behavior. It's time to PAY the piper, not roll over the debt ONE MORE TIME and kick the can further down the road.

ONE TRILLION DOLLARS is a token gesture...not even that. The money doesn't even exist, and EVERYBODY knows this. How does printing money to pay off debt end the cycle of debt? It doesn't. It only makes the debt problem worse.

The last thing the World needs is MORE funny money. We are drowning in it. Unfortunately, government's answer to every crisis is "print more money", "sell more debt", and lie, lie, lie.

If printing money was the answer, why not just print a million dollars for every man, woman, and child on the planet. That should fix everything. Damn, this crisis could have been over months ago if we had just given everybody the money, and given the banks the cold shoulder.

Here's a brilliant thought...why not just cancel ALL the debt in the world. POOF! Crisis over. Nah, too simple.

I have to admit, it is somewhat amusing watching the TRUTH unfold. After all, laughter is the best medicine...and it helps to be fully invested in Precious Metals and the companies that produce them.

Here is a scenario I envision is about to be unleashed shortly.

May 10 (Bloomberg) — The U.S. Federal Reserve will restart its emergency currency-swap tool by providing as many dollars as needed to European central banks to keep the continent’s sovereign-debt crisis from spreading.

These swap funds are almost in place. The EMU and ECB claim they are DETERMINED to defend the Euro. The US Federal Reserve is determined to inflate America's debt away, but the Dollar has been rising in the "rush to monetary safety" [wink-wink] as the Euro has been falling. This rising Dollar is deflationary, the exact opposite of what the Fed intends.

Why is the Dollar rising? Because the Euro is getting the snot kicked out of it. How can this be reversed and the Euro defended? Give the ECB "as many Dollars as needed" and have them SELL the Dollars, and BUY Euros.

It makes perfect sense. The Dollar is sold hard, propping up the stock markets here in America. The Euro is bought vigorously, propping up the European Monetary Union. It's the only option left to save the Euro, and the Fed not only knows it, they are endorsing it.

It was quite surprising to see the Euro roll over and die the way it did Monday after the $1 TRILLION bail out was announced. But was it really surprising? Consider the overhead in the currency markets grateful for an opportunity to get OUT of the Euro on that huge bounce/gap up Sunday evening. They jumped out right at resistance at 1.31. It should have been expected, and most likely was.

This scenario I envision here is a trap that has been set for the speculators hopping on the one way bet that the Euro is just going to continue down the poop chute without out a fight. I expect to see shortly a MAJOR squeeze in the Euro, and a MAJOR ass-whuppin for the Dollar.

The race to the bottom of the currency barrel will tighten, and Gold will be the beneficiary. ALL commodities will benefit should this scenario develop. I believe the European finance ministers are out for blood in the currency markets, and the Fed stands at the ready to aid and abet them in their assault on the "speculators". This is going to be spectacular...

Of course, I could be dreaming, and the Euro will just continue down the abyss. But hey, so what! GOLD will still be the big winner because GOLD is the TRUTH, and the TRUTH shall prevail.

The following running commentary was seen at Harvey Organ's - The Daily Gold on Monday may 10, 2010 :

The Eurozone does not have 1 trillion dollars worth of Euros tucked away neatly to be used in emergency. This money must be printed.

Note also, that the IMF must come up with 220 billion euros. The usa share at 20% of the iMF funding is around 60 billion dollars. Thus the usa taxpayer is deeply involved in bailing out Europe.

In a major development, the entire philosphy of the ECB indepedence has been thwarted:

This announcement from Dennis Gartman today is quite revealing:

This was well expressed today by The Gartman Letter:

"The most important decision was that mandating that the ECB accept a mandate to buy European debt directly from the governments in question…This decision tells us unequivocally that the independence of the ECB has been utterly and completely compromised and that the political will of Brussels has trumped the economic will of Frankfurt…the plain and very simple truth is that the ECB's supposed "independence" has now been shown to be nothing more than a sham… a chimera… a willow-the-wisp, and in the end the ECB and the EUR will be punished for this decision to stand down from what had previously been considered sacred. In the end, gold will triumph for this decision is a very plain and very simple abrogation of all that the Bank has stood for previously."

TGL is ruminating on different ways of re establishing the gold spreads it adroitly trimmed on Friday morning.

A congenial discussion of gold athttp://www.marketwatch.com/story/near-record-gold-close-has-bugs-divided-2010-05-10.


Next question: how will the IMF get 220 billion euros for bailout? It raised only 7 billion by selling 400 tonnes of gold.

I guess they will worry about it when the time comes!!

Lets go on:

It is interesting that last week, the European governments were loathe to loan any money to Greece and now this week, they all agree to loan over 1 trillion dollars to bail out Europe?

And Merkel loses a seat in the upper chamber of her house in the riding of Rhine Westphalia as she lied to her citizens that she would not loan any money to Greece.

Now it seems that the ECB will be mandated to buy garbage from sovereign countries. The ECB will within a short time resemble the balance sheet of the crippled FED,

There are two articles that I want to bring to your attention on the Euro land bailout:

First from Lemetropolecafe's Peter R:

Shock and Guffaw

So let me get this straight; roughly $700 billion of the Shock and Awe $trillion Euro-Rescue is to come from EU countries. These are the very same EU countries that took weeks to dig up $30 billion/year for Greece. Now they will donate 6 times that much to a rescue effort for the rest of the continent. Really? The same Germans who just kicked their ruling party out of one house of their legislature for coughing up €40 million to help the Greeks will cheerfully hand out much more to Iberia? The same Brits who have flatly stated that they want no part of this deal will fork over billions anyway? Truth is, no European government has the cash to fund this new rescue effort so what is the gimmick? Yes, of course, the money will be printed!

Even the WSJ figured some of this out, "the ECB's experiment with bond buying will increase the European monetary system's exposure to potential credit losses if the sovereign-debt crisis turns out to be one of solvency rather than liquidity. Meanwhile, the risk remains that the ECB will allow itself to be pushed again by the market into making the program too big or using it too frequently, at which point investors might simply use the ECB's bid to exit, rather than enter, the euro-zone government-bond markets."*

"If the sovereign-debt crisis turns out to be one of solvency rather than liquidity." That's a good one. The issue is clearly solvency — Greece's together with the other Euro-peripheral countries. Their sagging debt ratings have nothing to do with liquidity. They can't afford to compound their debts any longer at 5% per annum. Their only choices are to restructure or devalue.

Much has been made of the inability of Euro countries to devalue their currencies in response to pressure. Don't be so sure of this. In spite of the ECB's protestations to the contrary, the rescue plan should devalue the Euro as well as funnel cash to Spain, Portugal, etc. Devaluation will be accomplished as the The European Central Bank accepts worthless securities as collateral for Euro loans. The banks are delighted. $700 billion of their toxic assets can now be shifted to the taxpayers of the continent. The German public's pockets can be picked some more without messy elections or referendums to deal with. Anyone who mistakenly believed the Euro would be a better store of value than the Dollar or Yen can now officially admit their error. To save the spendthrift members of their Union, the ECB will hollow out the value of its currency.

Is that why gold sold off so violently in Europe — because the Euro is a safe currency, again? Oops, looks like that metal won't stay down — it's back over $1,200/oz as I write. Shock and Awe? Naw, it's more like Shock and Guffaw.
Best wishes,
Peter R.

and the second from Bill Holter:

Bill H:

We're saved!.....AGAIN?

To all; why didn't I think of "that"? "That" being the EU, IMF, and surely the Fed (in the shadows) creating $1 Trillion to save the world...again. In the words of Roberto DiVincenzo "what a stupid I am!". And to think, the world's investor population (including me) was worried last Friday about a currency/debt crisis toppling the world's financial system like dominoes. Never never again should anyone be worried about a market meltdown nor any sovereign government defaulting because "they" can always dig down (a mining term) deep into the currency barrel and pull a paper mache rabbit out of their hat!

But didn't "they" save the world in 2008 and further into 2009? Why did they have to save it again and more importantly how many times will we have to be saved again? OK, enough sarcasm, does no one see the problems here? As in where did the money come from? $1 Trillion? This amounts to roughly a third to a half of the value of all Gold mined since dinosaurs used it for barter! If it is so easy to create "money", why not just go "all in" and print $1,000 billion trillion gazillion and send out checks to everyone worldwide? I realize it may take some time to get these checks out into the hinterlands but the natives will get a nice surprise and we can raise the standard of living everywhere! Party on dudes!

Does no one see that the real problem is EXACTLY the solution used to fix it? In other words, "it's the MONEY stupid"! Yes you have heard this from me before, the root of the problem IS the money and the fact that it is fake, false, bullshit or whatever you want to call it. How valuable can it be if $1 Trillion can be created in less than 48 hours? I submit to you that over the weekend it cost some mining company MORE capital to create just one measly ounce of Gold than it cost the monetary rocket scientists to produce $1 Trillion, AND there was no (as in ZERO) sweat involved! Being the "logic goat head" that I am, now I actually believe that each and every single ounce of Gold that I own is worth AT LEAST $1 Trillion and I'll probably hold out for more! Talk about being confused...

So here we are, saved AGAIN, all is well, "low inflation, low interest rates, economies growing" blah blah blah. NO NO NO not again! Did it buy some time? Maybe. Maybe until this afternoon or tomorrow or next week...but the root of the problem is still with us and is now just a mere $ Trillion bigger! And doesn't this $1 Trillion of new debt and paper dilute the existing supply of manure? Yes it does and nothing has changed, the previous problems still exist, are now bigger and will make the final crash THAT MUCH BIGGER! Think of it this way, if the financial system was busted last week, now it's even more busted and the final default and hyperinflation will be that much more intense.

The funniest thing of all today is actually knowing that $1 Trillion more debt and currency is/will exist and Gold went down in Dollar terms, how humorous! Has no one done the math? More "money" vs the same amount of Gold = a lower price? Oh yeah that's right I remember when I was young and the schools were implementing "new math", ie. 2+2=5. So we will continue to sit and wait until Mother Nature takes over and destroys anything and everything paper tainted. I don't think she will wait very long this time because this is blatant and in your face "non logic". If you thought last week was a bit scary, just wait a short while because outright collapse, panic, civil unrest and global default lies just out in front. Sorry for the sarcasm above because this is not and certainly will not be a laughing matter, this is about the standard (lack of) of living being destroyed on a global basis. Don't be fooled! Regards, Bill H

Now I want to bring to your attention the introduction of the currency swaps.

As I told you on Saturday, these swaps means we have a run on a country. Or in plain English, a run on the banks in the various countries that they reside.

There is an exit of dollar denominated assets (gold and silver) leaving the banking system in Europe, as the Euro citzenry are scared to dickens to leave any of their euros inside the shaky banks.

They bought gold and shipped the metal to Switzerland. No wonder Switzerland announced that they are running out of room storing gold.

HSBC announced that they too have no room in Hong Kong.

We will have to see how the Euro trades in the next few days. If it breaks down from the 1.28 to the dollar and heads to 1.25 or so, the pundits are saying the

1 trillion dollar (750 euro) rescue is not enough. They need hundreds of trillions to rescue the derivative laden world. The vigilantes will attack Spanish, Portuguese, Irish and Greek bonds

driving their yields. There is just not enough money in the system to absorb all of these bonds.

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