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 ()

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dziprick
Sep 18, 2011 - 3:58pm

Timmy want Europe to Leverage their bailout fund,

How exactly does this work? They have a bailout fund. How would Europe leverage the fund? I am sure it somehow entails increasing money supply but I would like to know what is the actual method of inflation?

Thanks,

D

¤
Sep 18, 2011 - 3:42pm

We've officially entered the Twilight Zone/ from ZH

More Horrible News For Merkel As German Pirate Party Gets 40% Of CDU Vote In Berlin

Submitted by Tyler Durden on 09/18/2011 - 12:18

Just when you thought the news couldn't get any more bizare, we get this from Bloomberg;

GERMAN PIRATE PARTY TAKES 9% IN BERLIN, ZDF EXIT POLL SHOWS
MERKEL'S CDU TAKES 23% IN BERLIN, ZDF EXIT POLL SHOWS
GERMAN SPD TAKES 28.5% IN BERLIN, ZDF EXIT POLL SHOWS
ZDF EXIT POLL SHOWS POSSIBLE SPD-GREENS COALITION IN BERLIN

This is just a guess, but when almost 10% of Germans want the pirates to be in charge, you may have a political problem on your hands.

Chris P. Bacon
Sep 18, 2011 - 3:25pm

@Mudshark

Thanks! I found a version of that about 5-6 years ago and had lost track of it. Got it recorded now, thanks for posting!

HaoleTesla
Sep 18, 2011 - 2:48pm

Thanks again Tesla!

I'm going to order it. I think that some of Sitchin's interpretations/speculations, etc. could well be incorrect/inaccurate also but I also think there's much truth in his work. It's so wonderful to ponder it all at any rate. Best regards ;)

Tesla
Sep 18, 2011 - 2:46pm

Cool!

PM me about it after you read a few chapters brother

Tesla
Sep 18, 2011 - 2:37pm

@Haole

Things that cannot be proven at this time either way mostly or things that contradict current understanding of hard data. But this is a separate section of the book dedicated to speculation of possibilities and is NOT based on ancient writings or meant to be an answer to the riddles... only some ideas prefaced by a disclaimer stating so.

The main body of his book is concerning the history of the human race on planet earth and the 'creation' of planet earth, our solar system and the origin source of the moon and asteroid belt. It compares Sumerians writings found in Mesopotamia with biblical writings for modern scientifically provable correlations. Its impressive and believable even for individuals with extremely high intelligence/iqs.

It also covers a number of ancient works that are perceived as impossible by our current level of engineering ability/technology like those mentioned above and sheds light on the why and when.

You'll dig - trust me!

HaoleTesla
Sep 18, 2011 - 2:30pm

Thanks Tesla.

Briefly, what kinds of assumptions about Mars does he make if you will please? I've read some Sitchin but not this book.

https://video.google.com/videoplay?docid=1059595637721611521

Tesla
Sep 18, 2011 - 2:20pm

@Haole

Have you read 'Genesis Revisited' ?

I do not agree with some of his speculative assumptions about Mars in the last few chapters but the rest of the book is an eye opener to say the least. If you haven't read this you will def enjoy!!

Haole
Sep 18, 2011 - 2:12pm

Putting the validity in valedictorian.

Valedictorian Speaks Out Against School
¤
Sep 18, 2011 - 1:50pm

Fueling the fire

Bloomberg throwing a anticipatory thought out there about what "is" going to happen plants a seed of acceptability. He should know better and I think he thought well about that before saying it.

A small part of me thinks that it's by design and a few phrases come to mind in the overall picture.

Them: Thinning the herd /Staying above the fray/Divide and conquer

Us: Free for all / Every man for himself/Divided and conquered (spiritually and financially beholden)

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