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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  520 Comments

Jake
Sep 16, 2011 - 1:02pm

Excellent Response Scott--And I'll Chime In

"As far as after you present information to one who is unaware, why so focused on being right or wrong? Whose to say that your understanding may not have ignorances to a greater scheme in which you do not see, albeit less ignorance than someone who knows nothing about such a subject and has never given thought to such a subject."<---Be careful with being "tolerant" of everything, or nothing gets done. This is where leadership takes the risk of presenting an educated opinion that has absolutes and consequences. Middle of the road stuff is necessary until the initial evaluation is complete. Since, it never gets anyone past the first stage of the evaluation of a particular situation, you must be ready to attempt at getting to the suggestion of solutions.

Once the evaluation is made, (in this case, I'm assuming the conclusion is made to help the newb), then absolute and or educated suggestions/instructions should be coupled with an opinion of right or wrong. Without this, you shouldn't take the time. When I say right or wrong, I'm still in agreement with Scott because the best way to handle this is to say, "this is right" for me.

"Say you are talking to a single mother of three who is struggling to put food on the table for her children. A situation that many here probably could at least empathize with. Now, assume that this mother's job is working in the federal government. Do you think this type of person would be pro-limited government, knowing that it will cut her job? Here in lies a lot of the baggage that we face today.... as we have become dependent on a system that is corrupt at the heart."<---This type of person is sorted out during any initial evaluation on whether it makes sense to waste time trying to convince her of anything.

Some people just won't get it or won't listen. I recently was in a similar situation with a neighbor. He wanted to find out what he could do about "investments". (This was before the USA S&P AAA downgrade). I told him to get completely out of anything paper. As it turned out, he did, but his wife didn't. After evaluating her type, I concluded that there was no way she was going to listen.

My trigger was her comment that "I don't even look at my 401k anymore--It must be down 50%." I asked her what she was invested in..."She said, I think it's something called "equities". So, there are times when no amount of logic will work. Meanwhile, her husband has since purchased silver and gold for the first time-(he gave me the money, and I purchased it along with mine at the local coin shop as he is a busy self-employed worker).

When I brought it over, his wife promptly said, "would you two please do that in the other room, I'm trying to watch TV here".

"When one uses the word like sheeple, there lies great danger in blanketing a genre of people according to an emotionally charged word. Isn't this the very discrimination that drove many of us to be aware?"<---Agreed, I prefer to use this word only when avenues are exhausted in trying to convince someone of the truth as illustrated above.

ChicagoMark
Sep 16, 2011 - 1:03pm

Game on!!

Per Turd's comment, TIC flows have turned negative. Foreigners moving out of the $POS

Foreign holdings of all dollar-denominated short-term U.S. securities and other custody liabilities decreased $36.5 billion. Banks’ own net dollar-denominated liabilities to foreign residents decreased $7.6 billion. In sum, the net foreign acquisitions of long-term securities, the change in foreign holdings of short-term U.S. securities, and banking flows yielded monthly net TIC outflows of $51.8 billion. Of this, net foreign private outflows were $44.4 billion, and net foreign official outflows were $7.4 billion.
Eric Original
Sep 16, 2011 - 1:08pm

Tom

Did you know you can simply drag and drop your picasaweb image into your comment box?

beardeus
Sep 16, 2011 - 1:10pm

@ ewc58

Yes today is better.

bensgone ScottJ
Sep 16, 2011 - 1:10pm

Responding to Scottj recent post

Scott, you always make us think. That's why you are number 4 on the Leaderboard. So much for your, "I can't write" comment you made to me in Turd Chat awhile ago. Don't ever doubt your power my friend. You are a gentle humble soul, quite admirable qualities I might add. However, I must take issue with your epistemology, with all due respect, if I may.

First, no one on this forum is a sheep. This forum is not at all conducive to being sheepish. I would never, and most of us would never, call another member a sheep. We call those who do not and cannot think for themselves sheep. The sheep will in time follow us, because we seek the truth and try to spread the truth. We care about our lesser fellow human beings who suffer from lack of truth. Those who are not aware and get led to the slaughter as a result. Most of us were sheep at one time or another. So, we know to some degree what it's like being mind controlled and led like lambs.

If, one of the sheep is to be freed, then we must gently feed, those who are willing to hear, milk given with gentle kindness and respect. Referring to another fellow human being as a sheep does not isolate him,, it identifies who he is. If we call him a sheep to his face in an attempt to wake him up, chances are we will fail. It achieves nothing to use ad hominem attacks, instead we should use reasoned logic and the facts.

Secondly, I am fully aware of the fact that I am ignorant, simply because I am not omniscient, and do not know everything. I know that I know what I know, because I fully know what knowing is, hahaha. I'm not trying to be cute. This is epistemology. I do not lie to myself or others because truth is the most important thing in life, as far as I am concerned.

So, I do not understand in what sense you mean it, when you say "we all lie to each other". My deepest most sincere motive is to tell the truth, the whole truth, and nothing but the truth. That's what this site is all about, and why it is so loved by so many. A lie is a statement that we make knowing that it is not true, as opposed to what we know to be fact. We use lies to conceptually force a non reality on others, to take something from them, or use and manipulate them to our advantage. Sometimes we use lies to conceal a truth we wish to conceal. Lies are a form of attack against another psychologically, very much like physical attacks.

Perception is the what we see with our senses. Words are the tools that help us to organize all of the very complex material supplied by them. There is the reality that our senses observe and the reality we understand by the organizing power of conceptualization. If the tools of thought we use to organize that perceived reality are flawed, inaccurate in definition, or completely without definition, then our understanding of reality will be flawed to that extent. Perception is not reality, nor is our idea of it reality, simply by virtue of our conceptualizations. Our understanding of reality depends upon how accurate our ideas are consistent with what we observe and know as fact, or what can independently be verified by fact. We do not create the reality our sense perceive, but we do create a reality in our heads that may or may not be consistent with the reality that exist externally to our being. I know this can get very complex and tedious to think about, but I consider this science crucial to really knowing and understanding the relationship of what we think we know to that which really is independent of what we think or even perceive.

In closing, I take the time to respond to your comments because you are worth the effort. I hope I have given you in return, "food for thought". I enjoy the clearest of consciousness and awareness as a result of having an objective view of reality. I am not so arrogant to think that simply thinking or believing something to be true, makes it true. This is a very old classic issue argued by philosophers for thousands of years. I hope this helps you to clarify where you stand regarding this extremely important issue. My apologies to others who could care less about such abstract matters, however, if you are to understand mind control and programming the science of epistemology must be studied. Keep up the great work Scott !!

Missiondweller
Sep 16, 2011 - 1:12pm

Chilling

I found this post to be literally chilling because it describes perfectly well how the US economy will implode once interest rates rise and how China will be holding all the marbles.

I have always thought that one of the things that makes America great is that we make mistakes, recognize them, pick ourselves up then solve the problem and move on, unlike Japan that kept the zombie banks going and experienced two decades of stagnation. Now I see something different in America. Something has changed. We no longer are recognizing the problems and boldly reform. The free market has morphed into a soviet style planned economy complete with artificial interest rates and favored industries (Solyndra anyone) that produce irregardless of economics.

For the first time ever here in the US people no longer believe their children will live a better life. Worse, it seems instead we may be in for a long period of not just stagnation but something worse. Its actually made me a bit more spiritual. I value family and friends more than I used to. Those bonds may be much more important in the future. I'm less interested in buying a big house and more interested in going for a walk on a sunny day. I am prepared though with much of my family wealth in gold. This isn't the way I wanted to profit, but I am prepared.

Eric Original
Sep 16, 2011 - 1:12pm

Here's another one.  Yup it

Here's another one. Yup it works. But I have to have picasa open in a separate window, not just a new tab.

Tom L
Sep 16, 2011 - 1:20pm

@Eric

No, I didn't know that.

I R Google-illiterate... and since I have an android tab, I need to rectify that.

I know now. Thanks.

Ta,

ewc58
Sep 16, 2011 - 1:26pm

Cartel: epic fail

RANTING ANDY - The Gold Cartel is very powerful, with UNLIMITED PAPER to NAKED SHORT GLD and COMEX futures, EXPLICIT GOVERNMENT BACKING via “ownership” of the SEC and CFTC, and LICENSE TO COMMIT ACCOUNTING FRAUD via IMF Central Bank rules that enable double-counting of leased gold. And it is backed by the most criminal enterprises on Earth (to be discussed later in this RANT), the FINANCIAL MAFIA which have DESTROYED THE WORLD from their first-class aeries on Wall Street and London.

However, they DO NOT have the PHYSICAL GOLD AND SILVER to win the war, and thus WILL be destroyed no matter how skeptical we are given their aforementioned advantages. NEVER IN HISTORY has fiat currency “trumped” PHYSICAL GOLD AND SILVER (an amusing reference given Trump’s acceptance of gold as collateral this week), certainly not after 40 years of paper currency inflationary decay.

Read More

Tom L
Sep 16, 2011 - 1:29pm

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