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

Shill
Sep 18, 2011 - 8:34pm

http://whispersfromtheedgeoft

https://whispersfromtheedgeoftherainforest.blogspot.com/2011/09/epic.html

As Ambrose Evans-Pritchard notes in The Telegraph, a key rate setter for China's central bank let slip that Beijing aims to run down its portfolio of US debt as soon as safely possible. "We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way. Once the US Treasury market stabilizes we can liquidate more of our holdings of Treasuries," he said.
Long John
Sep 18, 2011 - 8:36pm

Ginger...1Cor13

9 For out of an installment are we knowing, and out of an installment are we prophesying.
10 Now whenever maturity may be coming, that which is out of an installment shall be discarded.
11 When I was a minor, I spoke as a minor, I was disposed as a minor, I took account of things as a minor. Yet when I have become a man, I have discarded that which is a minor's.
12 For at present we are observing by means of a mirror, in an enigma, yet then, face to face. At present I know out of an installment, yet then I shall recognize according as I am recognized also.
13 Yet now are remaining faith, expectation, love -- these three. Yet the greatest of these is love.

Concordant Version

Stratajema
Sep 18, 2011 - 8:40pm

Silver at retail

I've noticed that the demand for silver coins on Ebay is still rabid. But those purchases tend to be one coin transactions where people want to avoid the $15 shipping cost of large coin dealers.

At the bigger coin dealers (Apmex, Gainesville) I've notice that their stock of silver bullion coins is not being depleted as rapidly as a few months ago, when they would sell out of stock in a couple of days. My sense is at the *retail level* the consumer is showing some exhaustion in buying silver coins. Either that or the production levels at the mints has finally increased beyond the current demand level at $45 per coin.

ginger
Sep 18, 2011 - 8:50pm

Oh Gosh.. ..Maybe I shouldn't

Oh Gosh.. ..Maybe I shouldn't have posted ...

I just didn't want to disappear without a word.. ....Eric.. Maryann.. StrongSide.. Tesla.. LongJohn.. DPH.. EVERYONE.. I truly do love you all. This is a special place because of the group of wonderful people here. ...I'll be back. I have to see what you guys are doing. I have to keep up with all of your videos, ham, new gold coins, bacon recipes, who won the next BIG yellow hat, and all the rest. ;)

So.. ...not good-bye. Just till I see you again. You have encouraged me in so many ways over the past year. I leave you with this and I'll see you soon!

Video unavailable
¤
Sep 18, 2011 - 8:53pm

Is China the next big crisis?

CHINESE FINANCE
Is China the next big crisis?
China’s banks were widely applauded as they lent their way out of the last financial crisis, but now — with these loans coming due and interest rates on the rise — officials and analysts are increasingly sounding the alarm, writes Craig Stephen.

China’s dangerous new world of peer-to-peer credit
Online and offline lending platforms are skirting regulations and raising new questions about lending rules inside China. (Caixin Online)
China developers ‘short of cash’: analyst
China consumer, business sentiment slips
IMF's Zhu: China faces long-term high inflation

¤
Sep 18, 2011 - 8:56pm
Eric Original
Sep 18, 2011 - 9:12pm

NEW THREAD

NEW THREAD

Economical Disaster
Sep 18, 2011 - 9:16pm

N.I.A The BIGGEST SCAMMERS there is

Nothing worse then this group, pushing penny stocks then dumping them. STAY AWAY

Long John
Sep 18, 2011 - 10:33pm

Ginger...

Once and awhile, you can get shown the light, in the strangest of places, if you look at it right ..... Ps..the Better Half and I making ginger jam with fresh apples this week ...bon apetite!

silver foil hat
Sep 19, 2011 - 7:35am

another speech

on the lighter side. I guess they can get away with more in Canada.

Try saying a few of these things in the US and you will be hung by the pc crowd....

Best Valedictorian Speech Ever

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