Macro

520
Fri, Sep 16, 2011 - 9:46am

Gold is recovering today and is actually green on my screen. Wow! How unusual! Let's see if we can rally today and crawl back above 1800 before we call it a week. There's been some very interesting "news" rolling around for the last 24 hours and I wanted to take a minute to give you my non-educated opinion.

The crux of the matter is summarized quite well below:

https://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100011987/china-to-liquidate-us-treasuries-not-dollars/

Between these comments and the wikileaks cables, one can quickly conclude that the Chinese are considering (if not already actively engaging in) further "diversification" of their vast U.S. treasury holdings. In the article above, Mr. Pritchard makes this sound as if there will be some happy and pleasant side effects of these moves. "Don't worry", he seems to say, "those dollars will flow into hard assets like stocks, land and gold". As if it's a zero-sum, no-big-deal event. On this point, he is dreadfully wrong.

As you know, I have long maintained that the real purpose of Quantitative Easing is not to promote economic growth. It is to promote low interest rates. Remember how rates on U.S. treausries are set...through auctions. Simply stated, if you need to borrow $50B and there are no takers at 2%, then you have to try 3%. If no one wants your bonds at 3%, then maybe they'll take them at 4%. Low or no demand means higher interest rates. Period.

With U.S. borrowing needs at all-time high levels, the rest of the world must be induced to buy treasuries. But, rates cannot be allowed to rise. As Mark Steyn points out in his new book, if long-term rates were to return to 5.7% (the average for the period 1990-2010), debt service projections for 2015 would increase from $290B to $850B! Additionally, the only "way out" of our current fiscal disaster is to magically increase tax revenues through economic growth. A return to higher rates would stifle and crush any potential "recovery".

So, what's a Boy Wonder to do? The answer: MORE QE MORE QE MORE QE.

The U.S. has managed to cover its necessary funding needs since June by managing the headlines. Have you noticed that nearly every time a treasury auction arises or the POSX moves down toward critical support, some type of intervention takes place. Whether it's a foreign central bank devaluing their currency or a rash of suddenly scary headlines out of Europe, events seem perfectly timed to keep money flowing into treasuries. This can work in the short-term and it obviously has. The yield on the 10-year note has actually declined since the end of QE2 in June. This won't and can't continue. A recent study from the University of Wisconsin showed that, by 2020, U.S. funding needs will soak up nearly 20% of the total annual global GDP! Do you really think that that is possible? There can be no world GDP when world economic growth is crushed under that type of debt burden.

But, that's in the future. What about the near term? Eventually, rates will rise when buyers (like China) disappear. Faced with an immediate funding crisis, QE will resume with vigor. Left with no other government funding option, the Federal Reserve will be forced into creating trillions of new greenback, simply to keep the social security checks flowing, the doctors paid and the military shooting. The dollar will resume its long-term decline into obscurity.

In the end, all of the central bank intervention in the world will not be able to suppress the global demand for true safe haven financial protection. Gold will rise to heights that even you, my dear reader, may currently think are unattainable. Silver will most certainly come along for the ride. Therefore, do not be fearful. If you use the time left to prepare...mentally, financially and spiritually...you will survive, and even prosper, in the days ahead.

Here are your updated charts. Unfortunately, both have taken on the appearance of range-bound markets. This can be managed as it affords us the clear opportunity to buy at the bottom of the range and sell at the top but it certainly isn't as much fun as runaway efforts to the upside. For today, don't get too excited until/unless either metal is able to firmly trade through the blue trendlines I've drawn inside the ranges.

I'm going to be away and unavailable for most of the day today so, just as John said to Yoko, "looks like you're on your Ono". I will be monitoring things from afar, however, and will attempt to update if conditions warrant. Have a great day and a relaxing weekend! TF

p.s. Another preparatory move for the opening of PAGE:

https://www.reuters.com/article/2011/09/16/cjina-gold-idUSL3E7KG1IG20110916

About the Author

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turd [at] tfmetalsreport [dot] com ()

  520 Comments

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redwood
Sep 18, 2011 - 9:45am

DPH, do you ever sleep? 

DPH, do you ever sleep? Thankyou for all your very informative posts.

¤
Sep 18, 2011 - 9:36am

Merkel commenting on Sarkozy's "plan"

Merkel: "Nicholas got a little drunk and showed me his "plan" but I didn't have any tweezers with me at the time."

Gramp
Sep 18, 2011 - 9:32am

WTG Boardwalk!

That is great you have been able to start networking!

I would like to encourage any one who has even considered having Chickens to, GO FOR IT! Very simple to care for. Just do a few minutes reading.

Would you rather have your kids/ grandkids sitting inside watching tv, playing vidiot games, or have them harvesting fresh eggs right from the chicken coop?

Kids LOVE that type experience! Young families from "Urbania" have visited my parents "Shoe String" small business, and returned a year later to say their child talked about it non stop.

The chickens were free ranging @ my parents. A young Asian man looked at the yard and said "This reminds me of home..."

I asked "Where is that?"

He replied "Thailand"

There was a massive cultural Barrier that was removed by something as simple as the chickens. Otherwise, that fellow and I would NEVER had an in depth conversation about each other's culture.

Oh, not to mention once u have tried FRESH eggs, there is no comparison!

¤
Sep 18, 2011 - 9:32am

Can the euro hope to survive? ( & some Merkel caption fun?)

Financial Crisis: can the euro hope to survive?

As the Greek sovereign debt crisis bears down on the eurozone - and financial leaders bury their heads over the inevitable bailout - Martin Vander Weyer suggests how the euro's endgame will play out

By Martin Vander Weyer

7:00AM BST 18 Sep 2011

If you look at how the markets reacted, you might think the past week was one of positive progress towards a resolution of Europe’s financial crisis.There was, after all, plenty of talking – from last weekend’s G7 get-together in Marseille to Friday’s ‘‘Eurogroup’’ finance ministers’ conclave in Wroclaw, with some multi-national conference calls in between.

Angela Merkel of Germany and Nicolas Sarkozy of France reassured Greek prime minister George Papandreou that his country had a future in the eurozone, while EU and IMF officials felt able to give Greece breathing space by deferring until next month a decision on whether to release an €8 billion tranche of bail-out money that is conditional on progress in spending cuts.

The Eurogroup, with US Treasury secretary Timothy Geithner in attendance, agreed a so-called “six-pack” of tougher budget rules for member countries. And the European Central Bank was joined by the Bank of England, the US Federal Reserve and the central banks of Switzerland and Japan in a co-ordinated exercise to provide sufficient dollar liquidity for European banks to see them through to the end of the year.

The key people behind these moves also agreed that one topic was off the agenda: the possibility of a break-up of the euro and, more immediately,....

https://www.telegraph.co.uk/finance/financialcrisis/8771135/Financial-Cr...

Frontal Labottleme
Sep 18, 2011 - 9:11am
murphy
Sep 18, 2011 - 9:08am

Third Party article

What a third party will accomplish even if they don't win. Have not the time to watch the movie he talks about.

https://www.thedailybell.com/2957/Anthony-Wile-Nelson-Hultberg-on-the-De...

On another note. Is seems I picked an unfortunate week to travel and miss an immense amount of tremendous posts from so many.

@Scott- glad to see you returning to more postings. I always wondered why you slowed down from the amount you used to write on the old blog. As many have said you are wise beyond your years. What you may lack in your confidence of your writing skills, you more than make up for in content. I think it is time you start a local third party in your district and take a state or congressional seat.

@ BenRoberts- I really am at a loss worse words. Your wide ranging knowledge and the ability to communicate it are really outstanding. I don't know what you do with the rest of your time but I hope it is teaching political science to the masses. As a matter of fact it might be an idea for you to start a forum on the topic.

@ DPH- I didn't even know there was a Tycoon in the TFM mining business. Fantastic posting as usual, ALL of them, both the serious and DPH 24/7. You are a machine!

Here's to a good week coming up.

Red Pill¤
Sep 18, 2011 - 8:23am

@DPH

more Matrix meaning and philosophy vids here

https://red-pill.org/the-matrix/meaning-philosophy/

Red Pillrowdyboy
Sep 18, 2011 - 8:20am

@Rowdyboy

DPH, thanks for the spotlight on the ESF. Very few people understand the power and control held by the ESF. This does not fit in with what the country's founders intended. It is a black op that works outside the government, with no overview of any of its activities.

I will definitely review this material. Did you set up a forum topic for this?

Forum topic here https://www.tfmetalsreport.com/forum/esf-americas-secret-weapon/550

zilverreiger
Sep 18, 2011 - 7:53am

UK Trading platforms

Interactive brokers is nice

Sim
Sep 18, 2011 - 7:48am

Gold and Silver

I think we are headed up. There will be volatility the coming weak because of Big Ben's performance but both precious metals have no where to go but up. Dollar is doomed until the Fed stops printing money so we are headed up. Next week's outlook updated at https://mcx-advisory.blogspot.com

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Key Economic Events Week of 5/11

5/11 12:00 ET Goon Bostic speech
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5/15 8:30 ET Retail Sales and Empire State index
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5/4 10:00 ET Factory Orders
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