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Strategies & Market Trends : Dino's Bar & Grill -- Ignore unavailable to you. Want to Upgrade?

To: Goose94 who wrote (2584)	9/9/2013 7:59:51 AM
From: Goose94	Respond to of 202988

Peripheral Central Banks Go In Reverse Until quite recently, the central banks of many emerging markets have fought a losing battle against rapidly appreciating currencies. It wasn’t so much that their currencies were appreciating because of fundamentals—instead, too many US Dollar were being printed and they were searching for a home that provided returns. Take Brazil for instance. Starting from the lows in late 2008, the Brazilian Real (BRL) appreciated from 2.40 to the Dollar all the way to almost 1.50. Expensive it was to be in Brazil. A strong currency was strangling Brazilian industry and hurting worldwide competitiveness. However, as long as iron ore prices were strong, the BRL continued to appreciate. Of course, the Brazilian central bank tried to stop this appreciation. The way that was done was by printing BRL, selling them and using the proceeds to buy US Dollars. While that slowed the appreciation and led Brazil to accumulate sizable US currency reserves, it also stoked inflation as they introduced more BRL into circulation. (In theory Brazil sterilized some of this money printing, but sterilizing money printing is an imprecise exercise at best.) In a country experiencing inflation, lenders demand high interest rates in local currency. Therefore, Brazilian businessmen began to borrow in US Dollars at much lower interest rates. That was all fine and good, until iron ore prices dropped, and the BRL started to depreciate. Now, Brazil is stuck, extreme example, but imagine the guy who borrowed at a 1.55 exchange rate. Today at 2.35, he’s looking at owing 50% more than he set out to borrow, as he will be converting depreciating BRL into US Dollars to pay off this debt. The Brazilian Central Bank can sell the US Dollars that they have acquired and soak up BRL, but the economy is weak and that would only serve to reduce liquidity in an economy that needs liquidity (think of it like QE in reverse). Meanwhile, if they don’t stop the BRL from depreciating, all of these businessmen that borrowed in USD will be in terrible shape. Of course, it isn’t just Brazil that faces this predicament—look at Indonesia, Russian, Turkey, The Philippines, Thailand and all sorts of other countries that tried to stop their currencies from appreciating. All of those local currency units that were printed to soak up the dollars served to create a credit boom. Even worse, some of that Central Bank US Dollar liquidity made it into the local financial system as well. Bernanke’s experiment in recklessness just came home to roost in the smaller and rapidly growing countries of the world. Checkmate!! Won't be another emerging markets debt crisis like 1998. These countries have learned—they have much less corporate dollar debt than in the past. Even more importantly, government debt levels are lower and these governments have been able to borrow some of the money in local currency that can be printed in an emergency. Furthermore, currency reserves are much larger. In the short term, there will undoubtedly be pain—there already has been some—there will be more. However this is also the opportunity for investors to buy into growth right when prices are cheapest, currencies are depressed and structural reforms will be benefitting the local economies. The great thing about a currency crisis is that changes are made—sometimes rapidly—large investment projects that have been stalled for nationalist or political reasons or simply for the desire for corruption get suddenly fast-tracked. A bit of fear is good for most countries. It lets them address their issues and do it with a weaker currency—which is always good for domestic industry. Emerging market investors realized just how important Bernanke’s money printing was in terms of transmitting liquidity to emerging market economies. When you look how illiquid these currencies are when foreign investors want out at the same time. As this transmission mechanism goes into reverse, central banks will be selling dollars to soak up local currency units—the next shoe to drop is slower credit growth in emerging markets, which will lead to slower growth and an even weaker currency—it is a dangerous feedback loop. In addition, when they sell dollars, they are most likely selling US Treasuries that they've purchased with those dollars. The whole world is on the Bernanke Standard. For this reason alone, Bernanke can't stop printing—it will just be too painful to all of our partners around the world who are actually driving the world’s growth. It is one thing to threaten a taper—it is another to actually go through with it. He cannot let the world unwind. At some point in the next few weeks or months, there will be an amazing opportunity to buy emerging market assets at silly prices. People don’t realize that the growth is still there, and valuations are suddenly becoming attractive—right as these companies get more competitive as their currencies depreciate. For the past century, the guys with access to US Dollars at the lows were the ones who made fortunes—we are part-way through another emerging markets currency crisis. Get ready to make your shopping list and bet on the assets that are the most beaten down, in the fastest growing countries.

To: Goose94 who wrote (2584)	9/14/2013 12:39:50 AM
From: Goose94	Read Replies (1) \| Respond to of 202988

Gold knocked down again...and again Signs of gold market manipulation with strange sales patterns emerging have reappeared and gold’s hoped for post-northern summer recovery has been nipped in the bud yet again. The strange dealing patterns which were adversely affecting the gold price earlier this year appear to have returned again following the end of the northern summer holiday season. We were looking for some direction to be forthcoming now the money people are back at their desks – and so far this activity appears to be negative. Why do we think these are strange dealings? They revolve around the unloading of a lot of gold contracts in a very short space of time out of hours at a time of day that there is normally little or no activity in the markets, and no news story being released at the time which might have precipitated such a dramatic shift. This has happened for both of the past two days, and we can probably expect more of the same. This is manipulation pure and simple. It’s not a logical pattern for any dealer to follow to generate maximum value for their sales, although arguably those holding big short positions would find the moves more than satisfactory. However some of the ‘usual suspects’ reckoned by the gold bulls to have been responsible for similar movements in the past have turned long on the metal, so perhaps they are not guilty after all. Some even reckon China may be behind the manipulations which seem to be taking place after close of Asian markets and just ahead of opening of European ones. With the kind of gold purchasing activity seen in that nation when the gold price dropped so sharply back in April, perhaps this could be seen as yet another way of moving physical gold from West to East as part of an ongoing pattern to corner the global supply of gold. Certainly Western gold inventories seem to be declining rapidly and no-one is really sure how much physical metal actually remains in central bank coffers given their rather opaque accounting mechanisms. Who knows? But, what seems to be apparent is that the kind of seemingly illogical activity seen in the gold market is still continuing and unless there is a major change in purpose from those causing these strange price patterns, then gold – and the other precious metals which move on gold’s coat tails – will likely continue to remain depressed which is very disappointing news for the junior gold sector in particular, which continues to remain very depressed. Indeed so many companies are just hanging on by the skin of their teeth at the moment that they may not be able to survive for very much longer. With some estimates suggesting that about half the world’s new mined gold production is unprofitable at or around $1300 an ounce, there will have to be some more attrition here unless there is a very rapid turnaround in the price. World gold output is likely to be at best flat this year – it may turn down a little – but not drastically as one of the effects of a low gold price is that those on the edge, which have the capability of doing so, will be mining higher grades to try and stay afloat. And high grading at the same mill throughput means higher output of physical metal, albeit at the expense of longer term mine life. This pattern will likely continue, accelerate even, should the gold price remain at or around current levels, or lower. Long term, of course this will all turn around, but who knows what period of time will be involved before this happens? In the meantime be prepared for more of the same, and additional volatility around economic data and any U.S. Fed intimations of tapering or otherwise. Same old, same old. http://www.mineweb.com/mineweb/content/en/mineweb-gold-analysis?oid=204854&sn=Detail