Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: gregor_us who wrote (65541)	7/7/2006 3:28:54 PM
From: orkrious	Respond to of 110194

Date: Fri Jul 07 2006 15:09 trotsky (@pm stocks) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved following the Dow - as usual of late, but outperforming to the downside for the past hour or so. this will likely continue in the next few months, i.e., every time the broader market gets hit or rallies, the gold sector will tag along, only with a much higher beta. Date: Fri Jul 07 2006 14:20 trotsky (frustrated@US banks) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved usually when the banks get into trouble, the Fed acts as 'lender of last resort' ( after all, in the fractional reserves system, almost ALL banks are de facto insolvent - they could not possibly survive a bank run, not even a small one - sans Fed, that is ) and at the same time can be depended upon to quickly cut short term rates in order to give the banks a positive carry. in case you want to know if a 'too big to bail' situation could develop, imo this could easily happen, although not a single mainstream economist would agree with that. irrational faith in the system is about as entrenched as it could possibly be. Date: Fri Jul 07 2006 14:11 trotsky (@the curve) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved it may well invert further before turning around, but the fact of the inversion as such is a pointer that the cycle is close to its next turning point. iow, inversions never persist for very long. Date: Fri Jul 07 2006 14:08 trotsky (frustrated@near term) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved my playbook says we probably trek higher until shortly before the August FOMC pow-wow, and then go down with the broader market into a late fall low. then the signs of a beginning rate cut cycle should become apparent, and the decoupling begins. Date: Fri Jul 07 2006 14:05 trotsky (frustrated@LTCM) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved they did everything just short of buying it outright. if need be, they can in theory alter their modus operandi and monetize just about anything. this is of course not likely to happen ( the risk of destroying the currency which is the source of their power is too great ) , but possible it is. Date: Fri Jul 07 2006 13:59 trotsky (frustrated@XAU and interest rates) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved the current position of the interest rate cycle is precisely what we usually see shortly ( a few weeks, more likely months ) before the gold sector embarks on one of its longer-term decoupling sprees. since short term rates are now very high relative to long term rates, the next MAJOR relevant move will be a steepening of the yield curve. when that happens, gold and especially gold stocks tend to outperform everything else, including commodities. usually a steepening yield curve is one of the symptoms of a liquidity contraction. note that a major driving force that pressures short term rates higher is demand for speculative credit. when that demand eases, so do short term rates. the liquidity contraction then goes on to expose all sorts of things, such as overvaluation of the stock market and malinvested capital that becomes then subject to liquidation ( think housing at the current time ) . during this period of contraction, the purchasing power of real money ( i.e., gold ) rises. the other instance of yield curve steepening that can sometimes be observed is when LT rates rise faster than ST ones. this tends to happen when the market thinks inflation is getting out of control ( the market doesn't think so right now as it were ) . in case 1 ( yield curve steepens on account of short term rates falling faster then long term ones ) , gold stocks tend to vastly outperform bullion, due to their margins getting two boosts at once, rising gold prices AND falling input costs. in case 2 ( long rates rising even faster than short ones ) , bullion tends to be the better performer, as input costs for the mines rise just as fast as the gold price. this is btw. the worst case scenario for heavy hedgers. ABX has just experienced an intense phase very similar to this scenario and it's probably a good bet that their book-keeping closet contains a number of skeletons by now.