i fear i am definitely not in, as i was helping friend by conversation and missed the boat for now
both are on monitor for watch n brief, and i may ... may... have a chance
just in in-tray
From: H
Sent: Wed, April 6, 2011 8:09:35 AM
Subject: Re: Darth Vader
Very likely - although it seems to me that once the current leg up in gold is done, it will likely be time for a bigger correction. Still, in that case, I would expect gold to once again hold up very well relative to other assets, mainly stocks and commodities.
Regarding the stock market I would note that a number of major warning signs are back. An all time high in the net bullishness of Rydex traders. A 20 year high in the 'smart money' OEX put-call ratio. The third highest ratio of total market cap to money market fund assets. An all time low in the mutual fund cash to assets ratio. A record high in net speculative long positions in DJIA futures. To cut this short: for the first time since the mid February high, traders are once again as bullish , overall, as they have ever been - in all of market history.
This does not mean the market must immediately turn down - but it certainly says something about the upside potential relative to the downside risk. Since gold has just broken out to a new ATH, it should continue to move to long-standing technical targets in the short term. I don't think though that it will be excepted when the next global margin call is issued - and that is definitely coming.
On Tue, Apr 5, 2011 at 10:07 PM, S wrote:
Okay H, thanks for that, and I think I'm with you -- although it's prompting me to again revisit the definition of what constitutes "risk assets" in a post-QE2 environment, since just about everything under the sun has been (and still is) benefiting from the liquidity pump, including gold -- only this time vs. 2007 a lot of sovereign debt looks dicey too
That said, we seem to be moving back toward the same big question of 2007, i.e. where does one hide in this next phase -- in 2007 the answer was park at least 50% in gold, not so much because you could expect to take no hit at all, but hopefully you would take the smallest hit of the bunch -- same answer today?
From: H
Sent: Wed, April 6, 2011 2:50:28 AM
Subject: Re: Darth Vader
A pause in QE means just that - a pause in the Fed's securities purchases. I don't think they will hike rates, and with the 3-month t-bill rate at 0.65 (0.35 yesterday, it moves around a lot), they have no incentive of doing so. Longer term rates should actually begin to decline once QE2 ends, as then the private sector credit deflation will once again become the dominant force in the credit markets. So I would look for a flattening of the yield curve post QE2, concomitant with a decline in 'risk assets' (which may begin with either a slight lead or a slight lag as in after the end of QE1).
If risk asset prices decline fast, then QE3 may come sooner than expected. Note also, an economy that is propped up bymeans of massive monetary inflation tends to quickly sag when that inflation ceases. In the past, the commercial banks used to take over the baton from the Fed fairly quickly and engage in credit inflation which the Fed then accommodated. This won't happen this time around, as the banks remain effectively insolvent. They hold large cash assets in the form of excess reserves, but I have read that if the entire addition to bank reserves were reversed (by unwinding both QE's), then bank cash assets would shrink to below $80 billion - which is way below the level that obtained prior to the crisis (about $370 billion if memory serves). Clearly as long as the Fed insists that 'one day' it will take back the expansion of its balance sheet, the banks will continue not to lend.
So in summary, as soon as the Fed stops pumping, the deflationary forces of private sector creit deleveraging will immediately be felt again. Various bubble activities that have been egged on by the Fed's pumping will cease. It will be exactly like in revolutionary France - whenever the printing of fresh batches of assignats had percolated through the economy, economic activity screeched to a halt again, which prompted more printing, and so forth.
On Tue, Apr 5, 2011 at 5:26 PM, S wrote:
H, are you therefore also saying that we're in for a temporary US interest rate surge (with attendant bond and equity selloffs) as the fast money heads for the door all at once?
And if so, do you have an anticipated time horizon for such an event?
Aside from my obvious reason for asking, it had been my interpretation that you were expecting rates to remain low for an extended period of time courtesy of Bennie's continued meddling
On Tue, Apr 5, 2011 at 10:35 AM, H wrote:
I agree....the hawkish talk is just hot air; but there WILL be a pause in QE.
On Mon, Apr 4, 2011 at 6:37 PM, D wrote:
The fed heads are just trying to float the idea of raising rates, (i guess they are trying to jawbone inflation down...) imo, they won't be raising rates any time soon...otherwise they may be blamed for accelerating the coming fiscal crisis in the US...its cert. won't be bacause inflation is ticking up (because according to the fed its transitory), and as for job creation, its still way below where it should at this point in the cycle and real wages are falling..see chart below.
Peter Hodson Apr 1, 2011 – 2:52 PM ET | Last Updated: Apr 1, 2011 7:05 PM ET
OK investors, hands up if you think the Fed is going to raise interest rates and slow down the surging economy this year. Instead of putting your hand up maybe you should hit the “SELL” button on your computer. Hit it again. And again.
Surprisingly — to us — there has been lots of “hawkish” comments from Fed officials over the past few weeks, with some officials indicating that it is time to start tightening again. These officials are worried about inflation, and want to fight it before things get out of control.
The Fed removes the band-aid that is QE2 on June 1. But after US$600-billion sunk into buying up treasuries to hold down bond yields, the legacy of that dramatic intervention and how it will play out in the second quarter is being hotly contested. Read our Q2 Outlook package Saturday in the Financial Post and at financialpost.com
In our view, these hawkish Fed officials simply just don’t get it. First of all, for the U.S. government at least, inflation is good. In fact, inflation is just about the only thing that can help the U.S. in its current situation. The United States has borrowed so much money from foreign investors, with no realistic way of paying these investors back, that it now becomes prudent for the government to pay back its obligations with devalued, printed money.
With TARP, TALF and all the other stimulus programs, the Fed’s balance sheet now stands at US$2.4 trillion. The Fed is now the world’s biggest holder of treasuries, surpassing China’s holdings.
Also, in case you haven’t noticed, the United States is involved in two wars and is, more or less, starting a third in Libya. It has also vowed to help Japan recover from its recent natural disasters. It all costs more money than the United States has hopes of ever having.
So, U.S. government spending continues to go way up, and U.S. tax revenue is not exactly surging. The Fed holds trillions in bonds. The unemployment rate remains high, at 9%. U.S. housing prices have started to fall again, as indicated by the recent Case-Shiller report, showing a 3% house price decline year-over-year. Consumer confidence in March fell by 10 points, the 10th biggest drop on record.
Nope, economically speaking, things are not good. Sure, commodity and stock prices are rising. But no jobs are being created, house prices are still falling and consumer spending is anemic, at best. With this economic backdrop, let’s look at the reasons why the Fed might raise interest rates. There are really only two reasons: to slow down a surging economy and to slow down inflation.
I think you will agree with us that the economy is clearly not “surging”. GDP growth, while recovering, is still barely above where it needs to be just to cover population growth. So the only reason the Fed would raise rates right now is to fight inflation.
Rising rates, however, have the following impact to the economy: They reduce investment by companies; they raise mortgage rates; they reduce hiring; they hurt the stock market; they reduce consumer spending; they reduce borrowing; they lower asset prices.
With the state of the economy, do you really think the United States can withstand the negative impacts of rising interest rates right now?
Not a chance.
The Fed knows this (at least Bernanke does) and in our view there is a zero per cent likelihood that rates are going up anytime soon.
From: c
Subject: FW: Darth Vader
Date: Sat, 2 Apr 2011 08:24:12 +0800
Subject: Fw: Darth Vader
I have a soft spot for Lord Vader and as a kid, wanted to be him....he makes a comment in Return of the Jedi, "Don't underestimate the power of the Dark Side."
It is appropriate for a number of reasons, not simply because he could use the force and had a lightsaber. Gold's sharp move lower on the back of the just-released Non-Farm Payrolls is significant and the view from our economists is that "if the data continues like this, the risk is the Fed moves sooner." This comes as Bullard, Plosser, Lockhart and now Kocherlokota all start to talk about the end of QE2 and/or rising rates.
Underestimating the impact of the Fed balance sheet is a mistake, in my opinion. Attachment 1 shows the relationship equities and commodities have had to the expansion of the Fed balance sheet since QE1 began.
Furthermore, take a look at the 2nd attachment I got from our trader, John Panichi, that shows the performance of the S&P on days the Fed was injecting liquidity vs when they were not...Bernanke is Darth Vader.
It doesn't mean we get a crash but as we've suggested before, the starting point for us was that commodities got ahead of themselves.
Notice that Cu vs B/E inflation has started to normalise and whilst the China PMI number was positive, Cu still looks extended...not to mention it has broken its trend line that began when QE2 chatter started {Attachments 3-5}. Oil is breaking to new highs and has averaged US$110/bbl for the past 2 months (slowly boiling a frog?). This is important for 2 reasons:
(1) If sustained, energy as a % of GDP will be at the same threshold that we saw in '81 and '08
(2) Oil price spikes feed through to metals fundamentals with a 6-18mth lag
Page 8 of research1.ml.com
is all you need to read. I'm a happy seller of commodities. Some stocks have undoubtedly priced this in but falling commodity prices is too big a headwind...as is Darth Vader
Sales - Todd Hoare |
