Dollar & Bond Bottom?
We respect Rick Ackerman’s technical analysis a great deal so when he stated earlier today that Killer Deflation Next If Dollar Is Bottoming our ears perked up. Not that we believe “killer deflation” might be next, we are interested in the part about the dollar bottoming. In the referenced article, Rick points out that his “hidden pivot” method has picked 80.04 on the U.S. dollar index as a key level. He also makes the case (which he has made many times in the past) that the dollar actually has a massive short position, which is a somewhat unique argument but one we respect:
The short squeeze that has powered the stock market’s bear rally since March 6 corresponds precisely to a period of weakness in the dollar, and that is why we expect shares to fall hard if the dollar strengthens. Why should this be so? The simplest answer is that a rising dollar is going to catch borrowers around the world with their pants down. For despite the deleveraging of the financial system that has occurred since the U.S. mortgage market began to implode about two years ago, borrowers are still caught in a vise, and the world is still massively short dollars because that is the currency in which nearly all borrowing has been done.
World Massively Short Dollars
Scores of millions of homeowners who are mortgaged to the hilt have implicitly bet against the dollar. So have financiers who have used derivatives to borrow dollars in some leveraged fashion. There are hundreds of trillions of dollars worth of these instruments still in play, most of them denominated in U.S. dollars, and if they cannot be rolled forward, the borrowers will have to settle up in cash. Similarly urgent demand for otherwise shunned equity shares creates short squeezes in the stock market all the time, and there is no reason why a fundamentally worthless dollar could not be squeezed higher by the same implacable forces.
Beyond that, we also note that the 80 level represents psychological support as well as an important bottom for the U.S. dollar going back to December 2004. A temporary reversal in the fortunes of the dollar would certainly make sense to us if the “green shoots” of economic recovery are starting to wilt and the monster of deflation rears its ugly head again. It could be a bit longer before that happens but we are probably pretty close.
Bond Bottom?
Although Rick Ackerman did not mention this, we believe U.S. Treasuries are very possibly near a temporary bottom as well. Especially the 30 year Treasury bond, where the 115 level in the June T-Bond futures might be, for several reasons, the equivalent of the 80 level on the U.S. dollar index. While there are certainly good reasons for Treasuries to fall further, we suspect the recent action has been overdone. We wonder if much of the weakness in Treasuries on the long end of the yield curve has been the result of foreign sales (possibly including China). In addition, we note that the Federal Reserve has done little to defend long Treasury rates, preferring to do much of its buying in the middle of the yield curve. This is only speculation on our part, but the reason for this might be to create future flexibility to bring down long rates fast and hard should the need arise and once the foreign selling has abated. To do this, the Fed would simply sell from its short-term Treasury portfolio and buy for its long-term Treasury portfolio.
The below chart summarizes the Fed Treasury activity since the beginning of the year:
Note in particular the blue and orange set of lines. The blue is the short term Treasury Note and the orange is the long term Treasury Bond. Solid lines represent Federal Reserve holdings (in millions) and dotted lines represent the Treasury yield curve. It should be clear that the Fed has done little so far to defend the Treasury curve from going steeper (wider spread between short and long term rates). It should also be equally clear that the Fed is increasingly in a position to be able to do so as we describe above.
The question arises, why would the Fed be more concerned about the short end of the yield curve at the moment? The answer, in our opinion, has to do with the banks. More specifically, the banks are primarily borrowing on the short end of the yield curve (especially for liquidity purposes) while lending on the long end of the yield curve. Thus the Fed is simply looking out for the banks’ best interests in an ongoing attempt to shore them up.
Implications for Gold and Silver
We believe that the dollar dropping below the 80 level along with Treasury Bonds dropping under 115 may indicate that the banking authorities are struggling to maintain control. As a result, such developments would be quite bullish for silver and gold especially in the immediate term. On the other hand, if the above levels succeed as support, we could see gold and silver retrace some of their recent gains, although their technical strength may prevent the price from dropping too far. Everything considered, we are inclined to take some gains on trading positions at this point and reassess the situation once we’ve had more time to observe dollar and Treasury price action around these critical levels.
Tom, any comments on this article:
http://news.goldseek.com:80/GoldSeek/1243605552.php
Wonder if there is similar USGS data on silver exports…
right now the $ is down hard to 79.30 and the long bonds are up big. So what do we make of that in light of the above? Seems to negate that line of thought. Anyway I’m lookoing to sell some covered calls in slv and ssri today but it looks to me like we go to at least 16.50 on silver, 1k on gold and maybe there’s no looking back.
@marks
very very interesting info marks. I doubt that is fort knox gold. I just don’t believe the army would let the gold go under any circumstances. don’t know what it is but my friend tells me that one of the biggest new business license categories in Ca. is scrap gold purchasing and most of the owners are chinese. Can’t verify that but if true it could indicate substantial buying of scrap gold here for export to Asia.
It might be a good idea to take a few trading profits now. However, I’m going to be a ‘pig’ and keep the silver I bought at $9.50 and $11.00/oz. Better to hold out for the big payout or at least a parabolic move in silver (this hasn’t happened yet). Sometimes you can be too ’smart’ about this stuff and not make much money. My broker used to accuse me of just that. Just because you can take into account a dozen factors doesn’t necessarily make a model ‘better’.
Also, it looks like the dollar index did NOT hold above 80. Since the majority of traders are now technical (they don’t know a silver mine from a pork belly), this must be a bearish signal? If the times are bearish for the dollar they should be bullish for silver and gold.
Finally, we hold silver partly because of the long term demise of the US dollar. Why cancel our policy now?
Marks….I believe it’s ROB KIRBY’s BEST ARTICLE TO DATE. KIRBY, WILLIE, and CHAPMAN are in the FRONT of the LINE reporting the MANIPULATION and CRIME SYNDICATES controlling the MASS DELUSION. I read the article 3 times and wrote Kirby an email CONGRATULATING him on an excellent job.
The United States GOVT FIGURES have been so COOKED that REALITY is no where in sight. It takes people like those I have mentioned above to EDUCATE the PUBLIC that the figures that ANALYSTS work with….are not FIT to USE to begin with. I wouldn’t TRUST the IMF, WORLD GOLD COUNCIL, GFMS, or the SILVER INSTITUTE as far as I could throw a 100 oz SILVER BAR.
Ain’t much time left to get YOUR GUNS, GOLD, SILVER and BULK FOOD. If you wait until the MORONS on CNBC find RELIGION and come CLEAN…it will be TOO FRICKEN LATE.
Why would you write a story about a pivot point at 80,when the dollar is at 79.4? I am beginning to believe you are either a bear in bulls clothing, or just like making outlandish comments. How is that prediction of oil to $22 working out? I believe you stated that would kill gold too, right?
Now it’s a dollar rally, and hyper deflation. Since I consider you a reliable counter indicator, I’m glad to read your latest thoughts.
@mark
Mark, I was hoping that after I proved what a liar you are that you would simply go away. Oh well! I am no longer posting immediately to Silveraxis but rather first to Metal Augmentor so the post is actually a day old. I don’t typically wish ill on people, but you are a special case so I hope you get burned really bad following me as a “counter indicator”. Bad luck to you, sir!
I just talked to the poor USGS guy and he told me “gold components” is a catchall category and is not based on gold weight but rather the total weight of the items containing gold. For 2006, the “gold components” export figure was around 1500 tonnes. For 2005, it was 1300 tonnes. For 2004, it was 1200 tonnes. For 2003, 600 tonnes. For 2000, 1400 tonnes. For 1998, 800 tonnes. Also, the detail indicates most of the “gold compounds” are shipped to either Canada, Israel or lately Singapore. There are some unanswered questions in these figures but to conclude they represent U.S. Treasury gold being exported is simply ridiculous.
I am curious what are those “gold compounds” mentioned in the article. Kirby says he talked to USGS employee about the gross value of those items:
However, according to this table, in 2006 the value of exported “gold compounds” was approximately $19.247/kg, which is much smaller than the value of “waste and scrap” ($2240/kg) and “metal powder” ($19242/kg), not to mention gold bullion:
http://www.indexmundi.com/en/commodities/minerals/gold/gold_t5.html
By the way, there is another table which reports the export of gold ore, dore, and bullion. In 2006, US exported 228 tons of bullion ($4.38 bln) and 159 tons of dore ($2.67 bln):
http://www.indexmundi.com/en/commodities/minerals/gold/gold_t4.html
@silverax
And not only is Kirby making wild accusations, he is a shoddy researcher. I just looked up the export trade data and the “gold compounds” for 2008 are contained mostly (2600 tonnes) in a category called “7112990000 OTHER PRECIOUS METAL WASTE AND SCRAP, NOT ELSEWHERE SPECIFIED OR INCLUDED”. So it is simply a matter of the exporters completing the survey being lazy. Moreover, this category has a reported dollar value of $4.3 billion or $1.6 million per tonne. The price of gold is $30 million per tonne. Meanwhile, the exporters didn’t even provide a weight quantity for the category “7112910000 WASTE AND SCRAP OF GOLD, INCLUDING METAL CLAD WITH GOLD BUT EXCLUDING SWEEPINGS CONTAINING OTHER PRECIOUS METALS” even though it has a reported value of $2 billion. In other words, U.S. Census data should always be taken with a big grain of salt since the accuracy of the output is proportional to the effort that the surveyed companies make to report accurate input.
Tom….yes that makes SENSE….but so does SERGE. But don’t you think it is IRONIC that during the LARGEST DOWNTURN in ECONOMIC HISTORY….GOLD COMPOUNDS went from 2,000 METRIC TONNES in 2007 to 2,900 METRIC TONS in 2008??? It would be interesting to know what those GOLD COMPOUNDS are.
@SRSrocco
Interesting, yes. Relevant, no. As I stated the Census Bureau data is only as accurate as the reported figures so there could be any number of reasons why the number is off including math or transpositional errors. Also it could be something as simple as a new employee completing the Census survey for the first time and putting numbers in different boxes or confusing grams for kilograms. Don’t snicker at this until you have completed a few of these reports and have seen them completed by others (I have). That said, the high gold price is no doubt resulting in much more recycling than in prior years, especially in electronics and other applications and some of the numbers appear to be showing up in this “catchall” category. Someone looking at the details closely might even be able to figure out where the big difference is coming from, but I don’t have time for that since as I said it is mostly irrelevant.
@eddysharpe
Eddy, Nobody said sell any core silver, I am talking only about trading positions. You don’t hold a trading position expecting demise of the dollar unless your definition of holding period for trading is years or decades. Trading means buy low and sell high, hoping to repeat in the future. If I trade silver buying at $10 and selling at $15, that’s a tidy 50% gain. Then you wait for the next trading setup.
@silverax
Census Bureau surveys taken with a grain of salt - you can say that again. Having filled out these surveys before (not in this industry), accuracy and detail aren’t exactly top priority. It’s mainly something to just get off my desk.
One day of trading negates nothing, let’s observe for a bit what happens around these critcial levels, shall we? Treasuries were clearly oversold and they had a strong snapback. In any case, this is an important inflection point and right now my feeling is still that we get a “snapback” in all the markets as they return to a range trade instead of becoming derailed or taking flight.
Speaking about traiding: I found quite profitable to trade AGQ - it may almost double the profit (though it can be less if the price is not rising steadily).
I think Ackerman is one of the best “big picture” TA guys out there. His ideas are always well supported. For my own selfish reasons, I hope he’s correct about the dollar bottoming short term. The damn S+P 500 busted through the 200 DMA today, almost a month to the day after it rose above the 50 DMA. I have to say, the recent BS media spin on everything is weird as hell. The durable goods data is one of the best examples I’ve seen in a long time. The spin was sooo positive…up 1.9% in April(green shoots)…but what about compared to last April? DOWN 26.6%!!!(brown shorts)
Anyhow, I feel like a GOAT selling most of my trading portfolio on the 13th and missing out on adding 9% to it in two weeks time.
I missed the psychological aspect of desperate false hopes for a bottom to this economic mess taking hold and carrying things farther than they would normally go.
@silverax
Tom: Thanks much for your comments and research on this. I figured something was amiss…
I have a real problem with Ackerman’s logic.
Leveraged homeowners being effectively short the dollar? That’s a little too cute.
How does the average homeowner’s mortgage obligation put significant upward pressure on the dollar in the FOREX market? Is that homeowner going to sell his pile of Euros under the bed to pay off his mortgage? Is he going to liquidate all his foreign investments and repatriate to pay the bank? Does he even want to pay off his mortgage? Can he? Or if he defaults and the bank forecloses, perhaps some foreigner will come to the bank’s rescue and buy that overvalued house – selling Yen for Dollars to do so.?
I don’t get it.
The fact that “homeowners” need cash does not mean they will be buying dollars in FOREX. And the extent to which during hard times indebted Americans need to cash out and repatriate foreign-currency denominated investments could easily be offset by foreigners doing the same back into their own currencies.
As far as derivatives go at this point, given the SCALE, I suspect the need for cash to settle up will be met with a shrug and a promise, or perhaps mutual agreements to settle in kind when possible – not necessarily a sale of foreign currencies for dollars. Disguised default is more likely.
Mr. Ackerman says, “The short squeeze that has powered the stock market’s bear rally since March 6 corresponds precisely to a period of weakness in the dollar, and that is why we expect shares to fall hard if the dollar strengthens.”
What?
This correlation he leans on is a single episode among many non-correlated episodes.
I expect shares to fall again too, but not IF the dollar strengthens. The dollar MIGHT strengthen IF shares fall again – then again it might not.
I don’t deny normal short covering in the dollar (after a nasty decline) but I think the possibility of a major rally in the dollar on the basis of further deleveraging is exaggerated. Forced redemptions and deleveraging liquidations of foreign investments moving capital through the FOREX market put up the dollar. Will this necessarily happen again? Can it?
And just because the equity market takes another dive does not necessarily mean we have monetary deflation. It will be an asset deflation. A particular one at that. The dollar could still tumble with stocks this time for other reasons.
I suspect a liquidity drain/equity market take-down will be encouraged again in order to herd money into US treasuries as that market disintegrates at the hands of a government desperate to gorge itself at the expense of the economy. This might add a little support to the dollar – temporarily. But only in proportion to the NET amount of foreign investments being repatriated.
@BarbarianWho Thanks for your thoughts on the likelihood of another deleveraging “event” and the questionable relationship between a rising DX and falling equities. If there was a desperation index out there, I think it would be at an all time high.
I might be oversimplifying again, but it seems to me, that over the last several years the consistent driver of the paper silver price has been the general CRB(oil mostly) level. Not the gold/silver ratio, not safe-haven properties, not supply/demand issues, not the basis, not the COT reports, not the Crimex, not retail demand…none of the above. Paper silver buyers/sellers have shown little concern for silver’s monetary roots. All that stuff is starting to sound like a bunch of BS! Maybe it will change someday…but when?
OK, beat me about the head and shoulders now.
@BarbarianWho I agree with Barbarianwho on the subject of Ackerman. We can’t forget the LOGIC OF FUNDAMENTALS. I will take FUNDAMENTALS over TECHNICALS anyday.
CALLING this a BOTTOM in the BONDS and DOLLAR is like calling the BOTTOM of the REAL ESTATE MARKET. Sure we could have a reversal and a correction upwards as NOTHING GOES STRAIGHT DOWN. But these are different times. Anyone putting faith in FRNS back by the US GOVT needs to get their HEAD EXAMINED.
I have to agree with BOB CHAPMAN who has been more right than most on the present situation. He believes we could have a DOLLAR DEFAULT or DEVALUATION within the next 2-4 months. People need to realize this ECONOMY is DISINTEGRATING before our eyes. The GOVT is stating a 10% UNEMPLOYMENT RATE by the end of the year?? What are they smoking??
Right now we are at 8.9% and I would imagine another 0.4-0.5% for MAY. That puts us at 9.3% or so. We still have 7 more FRICKEN MONTHS. Now that GM and CHRYSLER are heading into BANKRUPTCY and all the PARTS SUPPLIERS going out of work this won’t help INCREASE JOBS one BIT. I would imagine we will have between 11-12% UNEMPLOYMENT by the end of 2009….and that’s U3 FIGURES.
THE BOND MARKET is DEAD…it knows it….it has a CANCER that is SPREADING each day the GOVT has to MONETIZE DEBT. The FOREIGN COUNTRIES know it….so it is just a MATTER OF TIME before the GREAT STAMPEDE OUT OF US TREASURIES and BONDS begins. No one wants to be the last holding WORTHLESS DOLLARS.
Lastly…as for the SCAD of worthless so called, “VANILLA ANAL-LISTS” out there being ANTI-GOLD like PAUL VAN EEDEN who says that the FAIR VALUE FOR GOLD IS $150 LESS need to find other work. PAUL who was a LOUSY BROKER, now trying to be a NEWSLETTER WRITER, needs to wake up to the FACT that he has been WRONG on just about EVERYTHING when it comes to GOLD.
This is a GREAT TIME to be LONG GOLD and SILVER.
I was told by a known reliable source about Ft. Knox that they cannot audit the unauditable. Implied meaning is there is nothing there to audit.
ShadowStats now has unemployment at 16%. My reliable source also states the US will be at 55% unemployment by early 2010. If you do not bother to even consider this a possibility you will be suffering from your own brand of cognitive dissonance
@Joe M.
Joe….anything is possible…and you need not worry about my COGNITIVE DISSONANCE…..my wife and I are out of the RAT RACE and live on our small farm/ranch. Nothing IMPLODES that quickly…just like most of the time it takes TIME for CANCER to SPREAD. 55% U6 FIGURES seems quite HIGH by early 2010. I think we will see 30% U6 by the end of 2010, and possibly 40% by 2012. But its ALL GUESSES.
SRSrocco has found a cure for his pessimism, it is Joe M. Let’s cure Joe M now.
@Andras I have to agree with you on that statement. JEEEESH….I thought I was the PARTY POOPER….but I bet you OL JOE M, could clear out a GOOD PARTY much faster than I.
FOR THE RECORD….I would like to state my VIEWS are not one bit PESSIMISTIC. Rather, I see them as being PRAGMATIC. Of course, that is up to DEBATE…but I would like to point out that, even though the likes of PETER SCHIFF was called “DR DOOM, MR. PESSIMISM, or MR. GLOOM on CNBC and FOX BUSINESS,….it did not change the FACT that he was DEAD ON about his PREDICTIONS (except FOR DE-COUPLING).
I take my VIEWS a step further than SCHIFF. I look at the ENTROPY of a SYSTEM and its ENERGY INPUTS and etc. SCHIFF makes his FORECASTS based on ECONOMICS and ETC…more limited in SCOPE. Even thought SCHIFF is correct in his assumptions on the ECONOMY…he misses the DISINTEGRATION and DARK AGES of the USA.
It’s probably a good idea to LEARN SOME REAL SKILLS….those that will get one through the COLLAPSE of the SUBURBAN WAY OF LIFE.
@SRSrocco SRS here is a nice article to chew on.
http://www.321gold.com/editorials/thomson_s/thomson_s_052909.html
SRS, I hear you man though timing is everything. Why waste time on learning a currently useless skill if we still have a year or maybe more.
Anyway, I like to think about you as a modern Cincinnatus waiting for the senate’s call by your plow. Just hope the senate comes to their senses.
Andras,
What SRS is talking about is learning new skill that will serve yourself and community in a post USD world or society collapse. Growing your own food, learning animal husbandry to assist you in this endeavor, learning how to shoot game and dress them out properly, learning how to preserve said game and food you grow.
These are all the skills we have lost that were common knowledge only a few generations ago. In other words, self-sustainability, this is where we are headed.
What a damning article on gold manipulation and supression by the US government and US banks in conjunction with the London markets. Anyone who claims manipulation is not going on in the PM markets has no idea what they are talking about. The evidence over the years clearly supports that theory reguardless of how much the price has risen in those years. The question one has to ask themselves, what would be the price had gold and silver traded freely. http://www.goldnewswire.net/free-market-swiss-site-interviews-gata-chairman-murphy
@Andras Cincinnatus was a WISE CHAP. Reminds me of SCOTT NEARING….the SOCIALIST who was blacked balled from the WHARTON COLLEGE OF BUSINESS because of his stances on CHILD LABOR, WOMANS RIGHTS and SLAVERY. Seems as if many on the BOARD OF DIRECTORS at the WHARTON COLLEGE were making big MONEY on the backs of 8-15 year olds….talk about PIECES OF SH*T.
NEARING was ANTI-WAR and spoke against about WORLD WAR 1. He was indicted under the Espionage Act for alleged “obstruction to the recruiting and enlistment service of the United States. NEARING was such a GOOD DEBATOR and ORATOR, that he was one of the FEW men who was aquitted in standing up against the US GOVT.
NEARING kept up SHOVELING the GARBAGE back at the OLIGARCHS, and soon found himself unable to find any TEACHING positions due to his IDEALOGIES. It was at this time that SCOTT moved to a VERMONT HOMESTEAD with his new WIFE, HELEN and became much like CINCINNATUS.
NEARING proved that you could still write books, lecture, and live a self-sufficient lifestyle. SCOTT and HELEN only worked 4 hours a day 6 days a week. This LIFESTYLE was so rewarding…SCOTT LIVED TO A RIPE OLD AGE OF 100 YEARS. I think SCOTT was one of the FEW that GOT TO HAVE HIS CAKE AND IT IT TOO.
Anyhow…people can sure wait to GET NEW SKILLS….but the DISINTEGRATION CLOCK IS TICKING. Time is not on the SUBURBANITES SIDE.
DARN…ITS SUPPOSED TO SAY…..SCOTT was one of the FEW that GOT TO HAVE HIS CAKE AND EAT IT TOO.
TOM…I request an EDIT FEATURE.
word…….
Well look at the bright side. http://www.theinternationalforecaster.com/International_Forecaster_Weekly/Gold_To_Stand_Against_Big_Devaluations
By what standard supports the statement “the US dollar is bottoming”? It is practically in a free-fall and shows no signs of a bottom, which at the very best requires several weeks of basing and holding support, of which none of this is taking place. As for the long bond, prices may rally, but it will only be a counter-trend rally as this market has already topped and will start a major reversal of higher yields within a few months.
100orbust,
Wait till the DOW start to fall. You don’t have to wait too long when P/E>120 and growing.
@BarbarianWho
It isn’t just mortgages that are paid in dollars but many, many types of sovereign and international debts. If these are being paid down on a net basis due to contraction of credit, there is a demand for dollars as Rick Ackerman correctly states.
As far as the relationship between stocks and the dollar, the point Rick was making is that cash has been spent to buy stocks over the past 2-3 months and that has reduced the demand for dollar equivalents. If stocks undergo another correction, cash will be pulled out of the stock market and that will create demand for dollar equivalents.
Both points are completely logical but that doesn’t mean events actually have to follow this particular sequence. That is why there is a question mark right there in the title of the post.
@silverax
why does money coming out of the stock market necessarily create a demand for dollar equivalents. it could just as easily create demand for euros etc. Just because the last time it found “safety” in treasuries and such it doesn’t mean it will next time. If confidence in the dollar falls as a result of the stock market falling then any number of non dollar denominated assets could become the destination for that cash, e.g. foreign stocks or bonds or maybe even dare I say it PM!
I suppose it also depends on how much of the contraction results in deleveraging of dollar denominated debt that has to be repaid. I don’t think it will be as severe as the last time nor do I think there will be as much confidence in treasuries as a final destination for that cash. Do you really think foreigners are going to take their US stock market cash and put it into US treasuries if the market craters? Not this time.
Meanhile Tom what’s with this recent big move in silver? Are we seeing hedgies move into silver like they did in gold? Doesn’t take much to figure that out if John Paulson’s and Einhorn’s buddies are following their lead. It’s a pretty easy play for them. Put a few billion into the bullion and the stocks and let them feed off each other It may be the only party left on Wall St. Every body loves a party right!
This is saying that basically the biggest driver of silver price was commodity speculation! I disagree to some extent
@SRSrocco
SRSRocco, Would you mind telling INTO what else will the great stampede out of the U.S. dollars go? Euros? Wasn’t Europe just a couple months ago a huge basket case with most Western European banks on the verge of failure due to loans made to Eastern Europe?
There is no possibility of 55% unemployment by early 2010. None. I will bet you whatever reasonable amount you are willing to put up. Also, the gold at Ft. Knox is audited each year by a Big 4 accounting firm. Before that it was audited by a small accounting firm. Before that it was audited by the Treasury inspectors. I suppose the only audit that will suffice for some tin foil hatters is an audit conducted by themselves.
@100orbust
The dollar “bottomed” near this very same level last December without basing and holding support. One reason the dollar is falling is because a bunch of morons think that an economic recovery is at hand. Let’s observe what happens to the dollar when the retarded optimism starts to fade. I’m not agreeing we end up in a SRSRocco collapse scenario, but I think people will start to see that there is little hope of a V bottom economic recovery. All that is happening is the pace of decline has slowed down, it has not even reversed at this point. This is turning into one of the biggest no-brainer investment scenarios ever.
@rob
The first time panicked money does not find safety in Treasuries, it will be the last time. Until then, foreigners will find safety in Treasuries. I think it would be silly to make a short-term bet on the basis that Treasuries lose their “risk-free” status, that is a bet with extremely long odds. If you make the bet enough times, you will probably win eventually (or maybe your grandkids will). There were people saying the same thing in the 1860s, 1880s, 1930s, 1970s, etc. and yet here we still are decades and decades later. In addition, Treasuries no longer being “risk free” will be heralded by gold and silver entering true backwardation. We are not there.
Rick Ackerman re-posted quickly on Kitco stating that the DX bounce only lasted four days and now he’s not sure where it will find support(http://www.kitco.com/ind/akerman/jun012009.html)…maybe he read Barbarian’s post here and thought he’d better update his analysis to meet the current situation. I still think he’s one of the best.
A guy over at MA says his long term DX bottom comes in at 78.19 and its back to the races for months.
I don’t really care how several pieces of paper compare to each other in their race to the crapper…they should add gold into the index wieghting.
TOM….again, you bring up GOOD POINTS. I would like to state though, that when people were saying the same thing in the 1860’s, 1880’s, and 1930’s, we were on a GOLD STANDARD. Of course, the 1970’s would not be included as NIXON dropped the DOLLAR-GOLD PEG. But, this was just the beginning of the GRAND FIAT EXPERIMENT. We can’t really include the 1970’s as it takes TIME and PATIENCE to DESTROY a LIE like the FIAT DOLLAR.
You say….”WHERE ARE PEOPLE GOING TO GO”…as they have to go somewhere. This is true. MY STAMPEDE may not be “JUST OUT OF DOLLARS”, per say, but rather a DOLLAR DEVALUATION. People need to realize TREASURIES used to mean something. They were backed by at least some DECENCY OF VALUE…today we have the LOT of TREASURIES backed by a DEAD and DECAYING SUBURBAN LIFESTYLE.
Hell, I don’t know if we will have a WORLD CURRENCY, pushed through by the members of the BILDERBERGS or what. But I will say this, TECHNICALS won’t get us through this MESS. Unforunately, the FUNDAMENTALS aren’t in our FAVOR either. So all you can do IS GO BACK TO BASICS BABY…and take CONTROL over your LIFE and make sure you have GOLD and SILVER.
This is all like one of those ‘thrilla’ movies where, after a long drawn-out brutal battle, it appears the villain is finally killed.(I mean that sharp jagged metal thingy sticking out of his belly has got to hurt!) As soon as the hero turns his back, the bloodied villian seemingly wakes from death and makes one more attempt to take down the hero. Don’t be slappin-the-mat on the dollar yet.
Tom, I applaud your use of the question mark to disassociate yourself from Ackerman’s “killer deflation” analysis.
You do seem to forgo your usual admirable skepticism regarding his call for a possible dollar bottom on the basis of “World is Massively Short Dollars.”
My criticism of the relevance of homeowner leverage was made because Ackerman brought it up - apparently as a (silly) supporting part of his argument.
Re the equity markets: a short-covering rally in a bear market (this year) is not the same as a highly-leveraged bull market that led to last year’s liquidation. Last year we saw a huge liquidation and movement of capital back into dollars as global equity longs were exiting from higher price levels.
In the current short-covering rally, by definition, shares have been bought to close out positions – and yes some new longs are put on but at much lower total value. Can I assume that any new longs being put on now pale in dollar value to what we had prior to last year’s equity slide?
We agree on equities and on the flow of some of that money back into “dollar equivalents” when equities fall. I simply question the scale this next time around and assumed effect on the dollar.
Back to Ackerman’s warning of a potential dollar low and the risk of a “short-covering” dollar rally fueled by a world massively short the dollar. He worries a rising dollar “is going to catch borrowers around the world with their pants down.”
Perhaps. But..
· How much of that debt is speculative and will quickly unwind like last time?
· How much of this speculative dollar debt is invested outside the dollar?
· Of the non-speculative international dollar denominated debt, how much will actually be paid down in a cash-strapped environment - pushing the dollar higher?
· How much of this debt will instead default given the increased difficulty to service it with a rising dollar?
· How many cash equivalent dollars are out there in the world looking for an alternative - pushing the dollar lower?
I wonder how much precious cash will be sacrificed by debtors for the benefit of incompetent and troubled lenders. A debt crisis of this magnitude requires the extinguishing of that debt one-way or the other. We can default, devalue &/or theoretically pay down the debt over time, given some economic growth and cash flow. It seems to me the third option by itself is quite deflationary and long-term – and unlikely.
I wonder how much we underestimate the default/devalue option.
No, the chinese business people are just adept at new business opportunities. These are just small time business people buying at -10% and selling at -1% to the scrap refineries.
I know because this chinese business lady who owns a few small businesses here in Philippines, mentioned she wanted to open up such buy/sell gold scrap business in California. Her husband is in CA. They are not exporting it.
All dollar debt creates a demand for dollars (interest payments). You can go through multiple scenarios that such dollar demand ultimately affects Forex. Bottom line is demand and supply of dollars. Thus dollar debt is short position on the dollar. It is a fallacy to believe that debt can be inflated away (it can only be defaulted)…
And the indebted are going deeper into debt, in order to service their existing debt, as their *REAL* income falls (and is deflated by inflation).
Higher long interest rates enriches the bankers who borrow short, lend long. This supports the continual depression, and continual transfer of wealth from masses (debtors) to bankers (lenders). But this can’t go too far, too fast, as the bankers want just the right mix of chaos and control.
We can have inflation in low income sectors simultaneously.
There is a massive transfer of wealth completing now, where the bankers are cashing in the loans on western middle class, feeding the world basic goods to keep them appeased, and transistioning to prepared for a new debt bubble in the developing world.
The bankers will turn off the dollar (causing hyperinflation in USA) only when the global system is becoming too unstable. They may try to manage a gradual devaluation of dollar to manage this transistion, but they will also use some degree of rapid chaos in order to create the pressure they need to get certain players to fall in line.
TPTB are attempting to manage these levers (which they can do because they control the issue of all fiat money). You have compare all the movements to their overall strategy and try to understand when they will pull a lever. Appears in their interest to let the dollar run lower, long interest rates higher, precious metals and stocks higher. Then they can reverse it a bit, but keep the interest rates a bit higher. Remember Bernanke said they would find ways to suck back in the $13 trillion in liquidity. The announcement to buy $300 billion of long Treasuries was probably just a publicity ploy, to get the levers moving in unison as they are in the current set up. Understand the bankers want the long rates higher. They want the crash of the western debtors into indentured servants.
Higher interest rates also motivate the bankers make news loans, to restore growth to the world economy, but this won’t stop the rebalancing of high income and low income economies (deflation of high real incomes, inflation of basic goods), which the bankers are trying to manage as a transfer of wealth via debt to themselves.
@SRSrocco
Steve, I think we can agree that anybody who has accumulated wealth or savings to protect and who does not have gold and silver is blind, reckless, dumb or a combination of the three.
The current DX of less the 0.7 does not fit to the necessity to come up with 100 billion $$ for the upcoming treasury auctions. Even the preparation of such huge deals should send the DX up. This and the yield for the 10/30-year treasures really look bad. Any ideas?
If I was a Chinese or Russian CB I would be tempted to stresstest the Au and Ag COMEX future markets given the current COT structure - with the intention to take delivery. In one of these days this is going to happen end will end lots of things we take for granted.
I love my tin-foil-hat as it deflects all of the lies/propaganda that impinges upon it and leaves me with a clear view/vision of what will be.
Even SRS does not see the collapse coming this year even though he admits it is coming. Some event somewhere is going to take this already fragile economy with its insolvent banks down hard and fast.
I only bring this out to get people to at least prepare for some very hard times ahead. Stored food, water, cash and a good garden are a start. It is better to be prepared than not be.
@BarbarianWho
These are some very excellent points, Barbarian! I agree we may not see similar scale capital movements, the stock markets are not as influential as last year, and debtors may default instead of paying up, but Rick’s argument is simply that while we continue in a credit contraction mode there will be net demand for dollars. Unless we start to get credit expansion, a move by the dollar lower is like stretching a rubber band. Once the dollar-selling dynamic subsides, we should return to contraction mode and arguably it wouldn’t take much in terms of capital flows to move the dollar back up. In other words, the dollar did the hard work initially going from 70 to 90 on the dollar index, which resulted from massive reversals of capital flows, but now that the path has been plowed it won’t take capital flows of similar scale to make additional moves of similar size as the initial move. Again, this only works while there is credit contraction as that creates the necessary demand dynamic for dollars.
Note that the above is only a theory and not fact and there could be other dynamics working in the opposite direction, for example, foreign dumping of Treasuries and the dollar proceeds being used to purchase other currencies. The problem with the Treasury dumping argument, however, is that as much as export powerhouses like China bitch about the over-consumption in the U.S., they still rely heavily on that very same U.S. over-consumption. If the dollar is pushed too low, exports become so expensive that domestic U.S. manufacturing would regain a competitive advantage. Meanwhile, a washing machine in every Chinese house and a car in every Chinese garage is a pipe dream for now, if not forever.
@silverax
Tom, I do not understand your logic when you imply >one of the reasons the dollar is falling is because …. economic recovery<, if a recovery was at hand, or even a strong perception of an economic recovery, this would justify higher rates to curb inflation which in turn should support the dollar. Note; Bond prices have now fallen from the 140’s to the 115 area, higher rates have not ebbed the dollar’s weakness. The main reason the dollar is falling is quite simple, the FED has no choice but to be the buyer of last resort for Long Bonds, there are no takers out there and obviously due to the fragility of the economy, the FED cannot allow long term rates to move much higher for any period of time. The BOND market has a mind of its own and will dictate where rates go. The BOND market does smell inflation on the horizon, the risk/reward ratio is not attractive to foreign entities, Russia and China already have too much exposure, and as the Dollar now broken ‘79, it should become clear the last 8 months action was nothing more then a counter trend rally, the long term trend still points lower for the greenback. Just looking at a 5 year chart for Gold against the Dollar, GOLD is no doubt in a very strong bull secular bull market and the Dollar is headed back toward 72 to retest support.
@Joe M. I will say this…for your 55% UNEMPLOYMENT to hit in 2010, we would need SEVERAL BLACK SWANS. I am not saying it is IMPOSSIBLE, but HIGHLY UNLIKELY. There are always PERCENTAGES of EVENTS taking place. I give yours about 5-10%. If it does happen JOE M, I will send you a SIX PACK of BEER and give you a GOLD STAR.
Yes, there is SPECULATION that we could see some SERIOUS STUFF late SUMMER or early FALL. If it implodes harder than the WORSE BEARS on CNBC….this country will be in SERIOUS TROUBLE…much sooner than later. Regardless….time to get ready was years ago. If you live in a SUBURB, with a house UNDERWATER, no GARDEN or FRUIT TREES and a job in the AUTO SUPPLIER INDUSTRY, I would advise you to find some family in the country and BEG for a PLACE to STAY….even if they are WHITE TRASH.
TOM….we are in agreement in your last reply….and that is, PEOPLE ARE CRAZY NOT TO PROTECT THEMSELVES in GOLD and SILVER. I would take it a step further, IF YOU ALLOW ME, and say….it would BEHOOVE people to pick up SKILLS our FOREFATHERS had like GARDENING, ORCHARDING, and having CHICKENS, and etc. This may be just as important as the METAL IN ONES BASEMENT.
Here’s a PROJECT for those who have long commutes or travel: Just look at all the CONSTRUCTION VEHICLES and EARTH MOVING MACHINES going up and down the highway. Take some time to watch how many of these EARTH MOVING MACHINES are needed to rebuild a ROAD or OVERPASS, its staggering. These VEHICLES get at most 4-6 miles a gallon. DAY in and DAY OUT, ARMIES of these EARTH MOVING VEHICLES go up and down the road as the YUPPIES RACE TO WORK without hardly a notice. At some point in time, the UNITED STATES will lose a great deal of its OIL IMPORTS. WHen that occurs, the PUBLIC will WAKEUP to the fact that, “THEY TOOK THE GREAT PHAT WHITE WAY FOR GRANTED”.
This is the GREATEST PROBLEM most of the so called “VANILLA ANAL-LISTS” miss when they produce their LOUSY ARTICLES and TECHINCAL WAVE THEORIES.
@100orbust
Dollar AND Treasury weakness is because investors are moving back into the “risk” markets expecting an economic recovery. Rates should be higher if there is an economic recovery, but most likely there will not be one and therefore your logic says rates should not be higher. If we look at the Treasury yield curve, only the long-dated securities have seen their yields rise substantially. This is almost no doubt due to dumping of longer dated Treasuries as investors move to the shorter end of the curve. As my chart shows, the Fed has NOT bought much on the long end of the yield curve either, concentrating the majority of its buying in the 1-5 year maturities. And as I’ve stated already, this is probably because the Fed wants to give the banking system every possible advantage in terms of favorable interest rate structure (banks borrow short term and lend long term). There is a limit to this however (which I peg at the 112-115 level in the T-Bond futures) and so if we see bonds drop lower than that while the dollar is also dropping, that would be a sign that the Fed has in fact lost all semblance of control.
@SRSrocco
Health care and the broken pension system are bigger issues to U.S. federal-state-local fiscal budgets than infrastructure spend at this point. There is significant opportunity to “rationalize” transportation budgets to increase efficiency and I think you will see major future diversions to mass transit, to be funded by selective deferred maintenance on roadways and abandoning of “anti-congestion” highway programs.
@silverax
TOM…yes HEALTH CARE and the PENSION PLAN FIESTA are coming to and end. I see HEALTH CARE as one of the LAST BUBBLES to POP. I believe you do not COMPREHEND what I mean about EARTH MOVING MACHINES. I agree we should SCRAP ALL HIGHWAY “ANTI-CONGESTION” PROGRAMS. Also, I would take it one step further, and stop any ADDITIONAL PLANS for SUBURBAN GROWTH…PERIOD. That is STRIP MALLS, COMMERICAL BUILDINGS, SUBDIVISIONS and etc. These will be just another TREMENDOUS LIABILITY into the future.
What I was trying to explain is not the MONETARY COST per say to these EARTH MOVING MACHINES, but the ENERGY they consume in keeping our STATE and INTERSTATE HIGHWAY SYSTEM in a decent degree of maintenance. Sure, we need to go to MASS TRANSIT….but dear sir, our whole society is based on the HAPPY MOTORING WORLD of ours.
If this HAPPY MOTORING WORLD and SUBURBAN LIFESTYLE comes to an end….there is not much left in business besides HAIR CUTTING and OPEN HEART SURGERY (line from kunstler). You still need trucks to get all those McPRODUCTS to the thousands of McFATS to serve the McAMERICANS their DAILY GREASE. I argue….we have designed a SYSTEM that has no FUTURE. And the Future is now here. When you put it all together….THE UNITED STATES is in one BIG PILE OF SHEET….and no ASSETS to pull ourselves out.
Believe you….I still LOVE THIS COUNTRY…but not the GOVT, INTEGRITY and MAKE-UP of a GOOD PORTION of its CITIZENS…time for a WAKEUP CALL.
ESCAPE FROM NEW YORK…..just might not be a MOVIE anymore.
@SRSrocco
I think there are more assets here than you are willing to give credit — such as the market of ideas and intellectual property, the socio-political system (such as it is, still the most dynamic in the world) and the military-industrial technology, among a few other “assets”. Also, the best (and by far most expensive) health care and higher education (though with too much liberal studies emphasis). Also, a very strong anti-tax, freedom and libertarian movement that may not be the majority but that has some influence over policy. No, none of these are “hard” assets but all of them are things that cannot be bought with money, and are greatly wanting in much of the world.
Currency matters! On April 26th gold’s London fixes were in the USD 890s and I bought gold Maples at RBC Bank in Canadian dollars with the rate being 1196.80. Fast forward to June 2nd and I bought more lower at 1138.39, and all because the loonie rose from 80 cents to .925. Memo to self: don’t pay so much attention to USD Gold. In Canadian dollars, the gold chart is basing and rests at the bottom of the channel. Add to that the Chinese students laughing at Geithner yesterday and I’d say the perfect storm is 48 hours out and incoming. Time will tell.
So, how much is SLV up since you sold on or before May 29? How much is the $ down since you wrote this story? Some things never change.
@Kipling
Are you suggesting the laughter of Chinese students might be a useful market symbol? Keep in mind Chinese students are told what to think and if they try to peacefully demonstrate in a public square they are squashed by tanks. Heck, we Americans treat our uppity students in a much more civilized manner: we just shoot them.
Hello Shelby and thanks for the post — I can confirm that many jewelry stores are also looking to buy scrap gold to turn a “small” profit. “We Buy Gold” is a sign that is popping up everywhere and starting to become ubiquitous.
Thanks for this summary, some very good points made!
How does the “information age” factor into this? Has it essentially become irrelevant as we deleverage into a simpler global system where the power structure is once again rooted in control of natural resources? And doesn’t that argue for a reversal of the “global democratic experiment” and back toward more authoritarianism?
SHELBY??? Do I know this Person???
Good point. Actually, one could look at gold priced in USD index (basket of currencies), as calculated by Kitco Gold Index:
http://www.kitco.com/gold_currency/charts.htm
http://i41.tinypic.com/149y1cj.png
http://i39.tinypic.com/2cpqfc6.png
Probably, it would make sense to introduce even more general Gold Index with a basket of major currencies (including US dollar) weighted via country gold stocks (or gold sales).
Thanks for the links, Serge. According to The Centre for Economics and Business Research, in an article in The Telegraph written by Angela Menaghan, Western world economies will account for less than 50pc of Global GDP this year, six years earlier than expected. China will overtake Japan in 2009 to become the world’s second largest economy.
“The Chines economy has bounced back rapidly,” said Jorg Radeke, economist at CEBR. “This will have knock on effects on oil and commodity prices…”