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

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  520 Comments

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RaRaRasputin
Sep 18, 2011 - 7:10am

UK Trading platforms

Deleted and moved to appropriate forum

Boardwalk
Sep 18, 2011 - 7:08am

New Recruits

Our farm was host to an edible/medicinal wild plant identification workshop yesterday. The reporter from the local newspaper who came to cover the event was a self professed "preparer". Two of the attendees were a young couple trying to transition from a life of wage slavery to one of self sufficiency.

The young couple are fairly close neighbors so we are looking forward to helping them get up and running. They're already well on their way, as they've just built a chicken coop and bought a few Silkies. Veggie garden is in planning stages for next year.

All three are now new recruits to the Turd Herd.

Gramp
Sep 18, 2011 - 6:02am

Some a.m. Reading.

China charms Europe, but Beijing has own agenda

By BARRY HATTON - Associated Press

https://news.yahoo.com/china-charms-europe-beijing-own-agenda-063837797....

Crisis-hit European countries are swooning over China's $3.2 trillion cash pile — the world's biggest foreign exchange reserves — even though many are angry about what they view as unfair Chinese practices.

"China is increasingly trying to diversify its foreign policy relationships ... trying to find the right ways to use its new-found influence, to gain from it," says Nicholas Consonery, an Asia analyst at Eurasia Group in Washington DC.

Join the dots, Beijing-watchers say, and China's strategy becomes clear: It wants to use its economic leverage to make friends who may be more forgiving in disputes over trade and human rights, and ensure doors are open for its goods and corporate investments in the European Union, its main export market.

Most immediately, many European countries are looking for a lifeline to extricate themselves from the continent's severe sovereign debt crisis, which threatens to collapse the continent's financial system.

She cites Greece as an example. As China promised to acquire that country's bonds, state transport giant China Ocean Shipping Co. snared a $1 billion concession deal in 2009 for the country's largest container-terminal port near Athens. That gives COSCO's growing port management business a foothold in Europe and positions it to prosper as Chinese trade with the Balkans and Central Europe grows. China also pledged to help double the trade volume with Greece to nearly euro6 billion by 2015.

In Italy, Chinese businesses have been buying up textile factories and producing the "made in Italy" label under Chinese conditions. That has undercut the prices of the finished goods and wages of Italian workers, causing tension.

When Greece announced its Piraeus privatization plan the Federation of Greek Port Employees went on strike, saying that "the government and the Chinese leadership should realize that we will not allow our ports ... to become Chinatowns."

KenscottStormdancer
Sep 18, 2011 - 4:21am

Excellent Information - Thank You

The information you provided is quite diverse and informative. I will have to take some time and digest all the different aspects of silver and industrial demand you have provided.

I hope you are correct in that investor demand will likely compensate for a possible decrease in industrial demand due to a more sluggish world economy.

Presently, I think silver will increase in value and investors do move to hard assets to preserve investments. Long term, I feel silver will increase in value unless certain things take place. If overall world demand for silver related goods does decrease, and the world economy goes completely digital, I think silver will decrease. Hopefully, these two possible outcomes do not take place soon though I do eventually believe one of the two is going to happen.

As for my current status, I have physical silver and plan on holding until silver hits a point I am looking for fairly soon. If I were to invest in indexes or the like, I would play it short with buying short-term on the low points and selling short-term on the high points. Also, I would be selling on percentages at this point in time.

Once again, I thank you for your informative response. I look forward to breaking it down and learning more than I current understand.

Kenscott

AinT
Sep 18, 2011 - 2:24am

Back from the coin shop

Just got back from the coin shop where I picked up this beauty, the 1Oz Lunar 2 dragon. I know at ¥6000, 100% (I kid you not) over spot it's not exactly the most economical investment but it sure is pretty. They were rationing them to 1 per person and there was a good 10 or so people waiting to buy them. No matter how much the paper price of silver is pushed down the demand for physical in Japan, and in particular these coins from the looks of it, is very strong.

¤
Sep 18, 2011 - 12:55am

Fall of the Republic HQ full length

Fall of the Republic HQ full length version
¤
Sep 18, 2011 - 12:52am

End of Liberty

End of Liberty
¤
Sep 18, 2011 - 12:49am

Hyperinflation Nation Part 3/3

Hyperinflation Nation Part 3/3
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Sep 18, 2011 - 12:48am

Hyperinflation Nation Part 2/3

Hyperinflation Nation Part 2/3
¤
Sep 18, 2011 - 12:47am

Hyperinflation Nation Part 1/3

Hyperinflation Nation Part 1/3

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