Quick Technical Notes
For what it’s worth (probably not much considering the price), I wanted to quickly mention a few technical market observations from various “gurus” and “experts” that I’ve melded with my own outlook.
(1) The U.S. dollar has not technically broken down completely although it is near the cliff’s edge. The most likely scenario in my opinion is that the dollar index will befuddle most “experts” and trade in a range around 85 for a while especially if the decline does not start to accelerate again this week. We should expect any drama to play out in advance of the G20 summit next week, not during or after it. I expect the summit to be a nonevent in comparison to all the hype and attention it has received.
(2) Be that as it may, gold and silver along with the U.S. dollar could very well mark time by trading in a lackluster if not orderly fashion between now and then. Any breakout or breakdown will be obvious if it happens and there should be substantial follow-through. As a result, trading the short-term trends should be a profitable enterprise in the days ahead. By “short-term trends” I mean something like the 30-minute or 60-minute charts. On such charts the present trend in both gold and silver is slightly down but that could change very quickly. For silver a new uptrend would be established above $13.90 and for gold above $955.
(3) U.S. Treasury prices are now at the top of their range and any move higher (lower yield) likely means that last December’s highs (lows in yield) will be revisited in the next several weeks. Being short Treasuries with a stop loss at slightly higher levels is probably the safest way to play this market for now, assuming there is a safe way (a good negative argument can be made considering the wrangling that the supposed safest investment in the world has recently undergone). I would expect Treasury prices to move in opposite direction to gold and silver going forward.
(4) Copper has some room to run and a recovery to the $2.50 level over the next few months might not be unrealistic. Unless they are waving a false flag, copper mining stocks are telegraphing a strong possibility of such a move. Copper is unlikely to rally while silver is weak although it cannot be ruled out on the basis of last August and September when copper stubbornly held its ground while silver got pummeled.
(5) Crude oil is on the verge of breaking out but it hasn’t yet. The $54.60 level in the May NYMEX futures appears to be a distinct line in the sand. A meaningful move north of there could preface a rally to the $75 level. Meanwhile, the contango continues to move higher and that makes ongoing storage of “excess crude supply” possible, if not profitable. Continue to watch the contango whether you are long or short in oil or oil stocks as it will be the primary indicator for the liquidation of stored inventory or lack thereof. As I mentioned last week, a drop in one-year contango (the difference between spot month futures and futures out one year) under $6 with crude near $75 could result in a “safe” liquidation of “excess supply” that may prevent a final capitulation bottom in the $20s. By contrast, a decline in crude back toward $40 accompanied by a drop under $6 in one-year contango would substantially increase the likelihood of such a washout.
Tom,
What is your take on today’s weak treasury auction? The Fed was purchasing treasuries today, yet the yield on the ten-year rose 11 basis points! Fekete’s theory that foreigners are going to keep buying treasuries in an attempt to front-run the Fed doesn’t seem to be taking place. I contend that foreigners are going to use this opportunity to dump their treasuries at an artificially inflated price. It looks to me like if the Fed wants to keep long rates down they will be forced to print more and more money to buy treasuries.
Thoughts anyone?
Not a big deal at this point, the auction next day was well covered. We need to go down the road a few months and then we will see if these massive Treasury issues will be repudiated.
Pump & Dump ‘boiler room’ tactics
That’s pretty funny!
A posible scenario:
If I was the Chineese and held a large amount of long term debt, but did not want to cause the price to drop by selling, would it not make sense to sell the long term treasuries to the fed who have anounced that they are willing buyers and then roll that money into shorter term yeilds.
Once I had got rid of the bulk of the longer term debt, I could then cash out the shorter term moneys as they come due and not roll them over. Could something like this actually work? The Chineese would take some losses, but the losses would be less, wouldn’t they?
The Chinese have already been reducing the long-term portion of their Treasury holdings but I don’t think they will completely eliminate it — for one there is a limited supply of shorter term Treasuries. Also, a 3.5% yield on 30 year bonds goes part of the way to offset any foreign exchange losses on the dollar compared to the near 0% rate on short term Treasuries.
“The Chinese say this, the Chinese say that”.
I suggest you look at what the Chinese do, not what they say. For one thing the Chinese are excellent manipulators in addition to good students of Machiavelli.
For your info, the Chinese have been shopping for commodities like crazy: oil from the Russians, base metals from Australia and Brasil. Where do you think that money came from?
My take is that the Chinese in large part have diversified away from buying T-bonds, but continuing to manipulate the data indicating that did not, as to fool everyone else.
Suggestion: take the Chinese T-bond holdings and the TIC data with a grain of salt.
The Chinese understand better than anyone that if they stop buying Treasuries the U.S. market will be effectively closed to them either because import prices of Chinese goods would rise too much, political backlash or severe economic problems in the U.S.
As the US could purchase Alaska from the Russians at their hard time, China can purchase sovereign land (or sea) from the US with their treasuries.
I am sure Obama would be happy to sell republican Alaska or Texas as he surely does not want a Chinese island inland.
Just a thought.
yes that is the solution. brilliant!
try again
More likely the Chinese will realize they sold junk to the U.S. and got junk in exchange. If and when the Treasuries are worth less (or worthless) I’m sure the Fed chairman and Treasury secretary (whoever they might be at that time) will tell China, “we warned you a long time ago to let the yuan rise against the dollar but you didn’t listen”. Why do you think they’ve been making all those otherwise pointless trips to China these past few years? They were basically telling China how the game will work and it is China’s own fault that it didn’t listen. March 17 was game, set, match insofar as China can now dump all the Treasuries it wants and the Fed is there to buy them. In turn if the Chinese dump their dollar proceeds from Treasury sales the Fed and Treasury would love it because that would finally drive the yuan closer to “fair value”.
Why would they necessarily have to buy Yuan? Why not Canadian assets etc.?
Bond market failures rising:
http://www.ft.com/cms/s/0/e32a8940-1989-11de-9d34-0000779fd2ac.html
Let’s talk when this is a clear trend.
Sellers of Gilts overwhelm BOE 2 to 1:
http://www.marketwatch.com/news/story/Offers-Total-GBP508539B-At-BOE/story.aspx?guid=%7B2DDD3B6A%2D7593%2D48E1%2DB284%2D19E0D7B238AA%7D
http://www.marketwatch.com/news/story/BOE-Buys-GBP249995B-Gilts-At/story.aspx?guid=%7B9C93DF8B%2D45C0%2D4EFE%2D8509%2DA449774CE399%7D
UN panel urges currency reform
“World leaders should urgently reach consensus on creating a global reserve system to replace the US dollar as the main international currency, the UN General Assembly was told on Thursday.”
http://ftalphaville.ft.com/blog/2009/03/27/54090/un-panel-urges-currency-reform/
An index of a basket of failing fiat currencies cannot replace the underlying failing fiat currencies. Only Gold is true money.
Told by whom??? A bunch of third world nations with no actual power, that’s who. Let’s talk when members of the G-7, not G-20 or the UN General Assembly, are clammoring for this.
Power? G7?
The “third world” Cinderella is going to the ball whether her bitch sisters like it or not.
Fairy Godmother(s) will see to it.
A dollar revolt is in the making. How it progresses is debatable, but it looks like long-term bilateral deals that circumvent the US dollar are an early step toward regional non-dollar structures. Rising influence of regional markets and currencies will also have an effect.
The PRIMARY “third world” priority is AWAY from the Dollar (via bilateral deals and regional trade platforms) - with any new “international” standard a secondary consideration on their part. One might say, that a new global monetary structure will REQUIRE the support of the “third world.”
I say this because I buy into the idea that power has already significantly shifted away from the G7 and their central banks. That is where the real constituency for a global currency resides - Europe and the US. They do not need to clamor, they already have the dollar and whatever it mutates into.
Too many people assume that the rest of the world even needs (or wants) an international reserve currency. We might very well swing the other direction with a fracturing of global trade along regional lines. Monetary barriers might evolve hoping to minimize the transmission of “economic diseases” between regions and global power grabs. This would be a reasonable consequence given the natural backlash to the global US$ system that brought us here.
G-7? More like D-7, DEBTORS-7.
Any comments on this article: http://seekingalpha.com/article/128150-nyse-runs-out-of-gold-bars-what-happens-next
I do not understand the story about warehouse receipts, etc….?
This is a nonissue, the kilo bars represent a small portion of total warehouse stocks. Let’s talk when we see COMEX deliveries threaten available (registered) warehouse stocks.
Global currency, it COULD happen
“The main criticism of such calls is usually that it would take years to implement anything like a global currency, that the world’s governance is not suitably united to make it feasible and that America itself would never bow easily to seeing its dollar dominance slip away.
Yet some very notable figures seem to disagree. Among them is Nobel prize-winning economist Joseph Stiglitz, who even inferred on Thursday not only was the implementation of a global currency possible, it was possible quickly.”
http://v2.ftalphaville.ft.com/blog/2009/03/27/54110/global-currency-it-could-happen/
Of course the whole thing is completely unworkable, more a sense of panic to come up with something - anything - at the G20 meeting?
“Very notable figures” are looking for notoriety and publicity.
More and more this looks like a terminally ill Royal desperately trying to find an heir in order to retain power over the kingdom. Calls for an alternative global currency will probably increase as those with the most to lose from lost dollar hegemony recognize developments and realize the inevitable. The calls will come from dollar friends more than dollar enemies as an heir to the throne is sought.
Countries with a clue seek other alternatives.