This morning Dr. Vronsky posts "thoughts to ponder" from Australia :
Afterthought to Paranoia by Brian Bloom
(vronsky) Dec 05, 07:16
"I was thinking about the fact that Alan Greenspan is now “telling” everyone that yields are going to rise, and about the fact that several Central Banks are now openly stating that they would like to reduce their proportional holdings of US Dollars. The question that I have been mulling over is “why?” Why are these statements being made? Are the Central Bankers being Good Samaritans by guiding the speculators and traders as to which side of the trades to be? I have seen a lot of commentary from observers which point to these statements as justification for their conclusions.
If it seems ridiculous that the Central Banks are “signalling their punches” so that traders can take the appropriate positions for guaranteed profits, it’s probably because it is ridiculous. There must be another rationale driving these statements, and that rationale must incorporate some form of “punishment” for the speculators who have been causing the Central Bankers so much grief.
Where I eventually got to is that we are talking about a time horizon differential. Central Banks think in years, traders think in days. My guess is that the foreign Central Banks are saying to Greenspan: “Get your house in order”, and Greenspan’s response has been “OK, I will start to make noises that will be intended to cool all the speculation and perhaps encourage some savings over the next few years.” The main implication of this approach is that if US savings start to rise, the multiplier will head south and the domestic economy will cool. If the domestic economy cools, then perhaps the US Dollar can be allowed to fall further under managed conditions over a prolonged period – which will lead to four outcomes:
Higher propensity for the US to export
Lower propensity for the US to import
Rising US savings can be diverted to pay off debts
ROW will start to shoulder an increasing burden of economic responsibility
To “trade” its way out of the current morass, the world will need orderly markets. Speculation needs to be brought under control, and what better way to do it than to cause a bit of “managed” pain?
So the Central Bankers will continue taking the opposing position to that which they are signalling to the speculators until the speculators get sufficiently burned to withdraw. These statements – in my view – are intended to corral the speculation herd once and for all. Once the speculators have withdrawn – which might be in (say) 6-12 months time, then the Central Bankers can start to implement their various agendas.
Finally, one reason why gold will not “rise to the sky” is that at a certain point it will become too expensive for conventional usage. As an example, the Indian market will go away. For gold to rise to the sky, 100% of its demand must come from “investors”. What’s the probability of this?
From where I’m sitting $500 - $550 is “reasonable”, a short term overshoot to $700 is probable (before it pulls back again to $500 - $550), and a short term hysterical overshoot to $1,000 level is possible. The market will then find its own level as conventional buyers go away and new supplies come on to the market. By way of examples: I have an investment holding in a little company called Citigold (CTO). This little company is sitting on an estimated 15 million ounces of gold resources, just waiting for the gold price to rise so that it can cash in. I have another investment in Macmin (MMN). This little company is sitting on an estimated 100 million ounces of silver resources waiting for the silver price to rise so that it can cash in. How many more companies are there like this around the world? How much more gold and silver will be found when the prospectors start responding to rising prices in precious metals? Yes, this will all take years to unfold, but then the Central Bankers are thinking in years.
In my view, these statements by the Central Bankers are part of a co-ordinated management approach. They are moving to bring the speculators under control.""
Posted on behalf of
Brian Bloom, Australia |
