Federal Reserve losing control

[vigilant]

Excellent article here. Sums up a lot of late breaking information, and previous concepts covered on Cryptogon.com re: contrarian indicators.

Via: Seeking Alpha:

John Dizard, writing in the FT Monday, (’Treading the foothills of a gold bull market’ ) outlined why he believes that we remain in the early stages of the gold bull market with a long way to go yet. Primarily this is because the mass of investors have yet to partake in the gold bull market and because the Fed is going to have to reinflate further which will be bearish for the dollar and as gold remains an important monetary instrument it will be bullish for gold. “So, even at about $800 an ounce, the real gold bull market has not begun.”

Despite gold reaching new record 28 year highs above $800 the sentiment towards gold remains lukewarm at best. Most of the UK, Irish and international financial press and media barely covered or ignored this significant development at the weekend. This, and the fact that the investment public remain unaware of the gold price and the merits of investing in gold are classic contrarian indicators which show that gold remains in the early stages of its bull market. When gold is covered as headline news in newspapers on a daily basis and articles appear regularly about the merits of investing in gold and how to invest in gold, then it will be the later stages of the bull market and an indicator that it may be time to sell. When stockbrokers start telling their clients and the wider investment public to buy the gold ETFs, it will be time to sell. When there are gold and commodities supplements alongside property supplements in major newspapers it will be the time to sell. When the topic du jour on the dinner party circuit is “how great my gold investments are performing,” it will definitely be time to sell.

Bull markets end in mass participation and mania and we are a long way from there yet. Besides this obvious lack of animal spirits and wholesale bullishness towards gold, it is also important to remember that gold remains undervalued. Gold will have to at least reach its inflation adjusted high of $2,200 per ounce (as oil and many other commodities have already done) before it could be considered fair valued or over valued.

Boris Sobolev of the Resource Stock Guide wrote perceptively: “What if, however, we are wrong and gold is now, in fact, making a final spike to its all time high of $850 or higher. The aftermath, as after the top in 1980, could be severe and it would be time to sell? Is this a real possibility?”

No, the situation today is completely different:

• In August 1979, Paul Volcker became the chair of the Federal Reserve and started to fight inflation by radically raising interest rates. Today, Chairman B. Bernanke, in an effort alleviate the pain in the ailing banking system, is aggressively lowering interest rates. • 28 years ago, the United States was the biggest creditor nation in the world. Now, the opposite is the case – U.S. is the largest debtor. This, along with the Fed policy, is causing the dollar to fall to historic lows.

• Gold may appear to be overextended but this is not the case in real terms. In fact, gold should be around $3,000/oz in order to reach its inflation adjusted highs. Only then will there be a real reason to worry about a possible end of the gold bull market. We reiterate that the gold bull market has a long way to go. Don’t be afraid to miss the boat – there are many opportunities ahead. Hold your positions and buy the dips.

[vigilant]

http://www.marketwatch.com/news/story/g ... 7B537BB029%

Great...amidst all this turmoil with subprime loans they are having to swallow....and of course I can't say for sure because I have not counted the gold.......but it appears as if the Federal Reserve Thief Families have, or are in the process, of stealing and selling the nations gold reserves.......I know that sounds like a bold claim, but considering the nationwide...uhh, no, worldwide swindle that is occuring, nothing at all surprises me anymore about the private families that own this country.


read this part...


"The discovery by James Turk of the Freemarket Gold & Money Report that, as Turk puts it: "the U.S. Treasury quietly made a subtle change to its weekly reports of the U.S. International Reserve Position, which includes the U.S. Gold Reserve. This change was first made May 14 ... It says the U.S. Gold Reserve is 261.499 million ounces and importantly, that the gold is now reported 'INCLUDING GOLD DEPOSITS AND, IF APPROPRIATE, GOLD SWAPPED' (emphasis added)."This description provides clear evidence that the U.S. Gold Reserve is in play. Gold has been removed from U.S. Treasury vaults and placed on deposit, presumably in the couple of bullion banks the Treasury has selected to assist with its gold price-capping efforts. Gold placed on deposit gets loaned out by these bullion banks, and then sold into the spot market to try capping the gold price."

[vigilant]

Antiaristo...sup with silver? Do you watch metals?

I have been watching silver sleep like a bear through this gold bug bull market, suddenly...."POP"...silver woke up big time...whats up with it? You know? I just checked the silver charts, and the options chain, and "somebody" has suddenly piled themselves into some damn silver.

[antiaristo]

.

Vigilant,
I don't play any markets, and keep my spending below €200/month

My interest is in exposing the criminals that are driving humanity to perdition.

I've never before seen a financial mental breakdown. Take a look at this chart for the Footsie, in particular from 3:45 to 4:30.

http://finance.yahoo.com/q/bc?s=%5EFTSE&t=1d


(I don't know how to capture that image. If anybody can, please post.)

[smiths]

i work in a mining media related business and i hear a hell of a lot about trends in mining,
where i live in western australia iron ore has been relentless in price and share value for the last six months,
but amazingly considering whats happening you dont hear much about gold excitement even with the price rising by $100 since august,
they all think its pretty high and laugh at the suggestion of fiat money collapse and gold in the thousands of dollars,
but in two years of working in the industry i have never heard anyone mention silver, as if doesnt even exist,
it is currently the most undervalued of the precious metals by far

[vigilant]

The only possible theory I have on silver is....

Big money stays away from silver because it is far more plentiful than gold. Gold being more scarce, it is easier to corner the market on gold. If silver were used as a monetary vehicle, it would be much harder to control than gold...and as we know, its all about the control.

[yablonsky]

(this is MOM from CR)

Wednesday, November 07, 2007
Guys, It's Over
In the last few days the remaining supports just got knocked out of the credit system. Things look quiet just because people are in shock. It's that brief moment after major injury before your nervous system conveys the pain signal to your brain.

This is pretty much the death knell:

Cuomo is demanding Fannie Mae and Freddie Mac, the two biggest U.S. providers of home loan financing, hand over details of loans they buy that may show appraisal values on homes were illegally inflated.

The attorney general said he uncovered a ``pattern of collusion'' between lenders and appraisers and said he is targeting banks beyond Seattle-based Washington Mutual. Fannie Mae and Freddie Mac agreed to supply documents, Cuomo said, giving the attorney general access to information on some of the $11.5 trillion of mortgages they own or guarantee.

``We believe it is widespread, it is prevalent,'' Cuomo said today at a press conference. ``In this case follow the money, the old expression, is follow the mortgage.''

If the appraisals were fraudulent, in theory Fannie would put them back to the originators. In practice, this will work just about as well as it did with New Century buybacks.

All correlations have gone to one, which means that a loss in one section of the debt system is reflected in other portions within two months. Insurers, those who wrote credit default swaps, and those who are holding the stuff are now locked into a self-feeding cycle of writedowns. Revalue the MBS and ABS (there is a big, big problem with some of the CC and auto ABS, as well as a growing commercial problem). This causes revaluation of CDOs. A lot of these valuations were somewhat supported by the bond insurers, who are now getting written down, which starts the whole cycle all over again.

Nikkei fell last night to close nearly into the 15,000s, and it is likely to get there this week. (If it sticks there I think it's a problem. Japan isn't showing much in the way of growth signs.)

The worst of it is that there is worse debt in a lot of countries than there is in the US. In 2008 rolling series of defaults take out banks in multiple countries - unless their countries can shore them up. We've entered an era of worldwide deflation which will be hard to correct. As these losses have to be covered, capital has to be pulled back by selling assets or by raising capital, which devalues the holdings of current shareholders.

Building projects are being halted and the next major impact on some of the regional banks are defaults on C&D loans.

The details no longer matter, but you can follow them at Calculated Risk. The entire system of debt is interrelated, so it no longer matters who goes first. Just about everything gets pulled into the whirlpool. The whirlpool ends when the debt is written down to match expected cash flows. But durations will now extend, which means pricing must continue to drop.

It's questionable as to whether T-Bills can hold their current price gains for much longer in some of the durations. On one hand, there is a shortage of strong value reserve instruments. But there is also a developing shortage of cash to buy them if they have to be sold to supplement cash flow. The effect should be correlated with longer durations. The FHL system may be looking at its first losses.

PS: You think this doesn't have an effect on companies like Cisco? As more and more of their profits have come from emerging market countries, more and more of their profits have become dependent on lending.

PPS: Diesel at $3.30, Gas all grades up to $3.06. Here comes inflation with a vengeance. Gas is up around 82 cents YoY, and diesel is up about 80 cents YoY. Heating oil is rising rapidly too. To understand the impact on grocery stores and retailers, few families with kids get by on less than 20 gallons of gas a week. The average is more like 25-30. Using 20, that's 16 extra dollars a week. Assuming no further increases, that adds up to around $150 - $200 cash less available to spend for Christmas for most families. The grocery stores will take a terrible hit as customers pinch pennies on food to try to cover the shortfall.

[vigilant]

This is classic. Here comes the part where the "big" bankers that created this entire fiasco shift the blame to the little guys that they instigated, coerced, and in some cases possibly forced into doing their bidding....If somebody has to go to jail, it won't be the real culprits it appears.


The attorney general said he uncovered a ``pattern of collusion'' between lenders and appraisers and said he is targeting banks beyond Seattle-based Washington Mutual. Fannie Mae and Freddie Mac agreed to supply documents, Cuomo said, giving the attorney general access to information on some of the $11.5 trillion of mortgages they own or guarantee.

[yablonsky]

book recommendation..

i know you've all heard of taleb's 'black swan' - i enjoyed it immensely; however, pick up richard bookstaber 'a demon of our own design' for a fascinating read on synthetic investment, contemporary wall street naming names, liquidity (The driver as opposed to efficient markets theory) written by an intelligent jew; a quant and high level 'risk manager'. skip around and revisit the text liberally as with all the best non-fiction.

on edit: i add that he - like the wave of quants that began pouring into wallstreet in the '80's on, has an academic background; and this is lucidly written for the literate layman.

[Pazdispenser]

yablosky said,

i know you've all heard of taleb's 'black swan' - i enjoyed it immensely; however, pick up richard bookstaber 'a demon of our own design' for a fascinating read on synthetic investment, contemporary wall street naming names, liquidity (The driver as opposed to efficient markets theory) written by an intelligent jew; a quant and high level 'risk manager'. skip around and revisit the text liberally as with all the best non-fiction.

on edit: i add that he - like the wave of quants that began pouring into wallstreet in the '80's on, has an academic background; and this is lucidly written for the literate layman.

As a financial planner for 45 families, WITH a masters degree in financial engineering, I am struck, more than most, by the recognition that hubiris amongst the "quant" class is to blame for where we are as much as anything. Where many of my quantitative colleagues have been until recently, "Masters of the Universe", I am haunted by that which I dont know, dont model, and how that might affect my clients.

So, I read yablonsky's post, with his/her reference to my idol Taleb and his smirking black swan. And what is it that strikes me most about his post? This Scotch-Irish American gentile finds "intellegent Jew" to be utterly irrelevant to this discussion, and thus repugnant; get this yablonsky: bookstaber's racial/religious/ethnic background is IRRELEVANT to any discussions on this topic.

[vigilant]

I don't know this for sure, yablonsky would have to be the final judge of exactly what she meant. But this is how I took her "intelligent jew" comment. In spite of all the racial slurs that fly around this country, the Jewish people are known for their financial intelligence. Her reference to his race may have been a compliment, and not the fact that she found it unusual for a Jewish person to be intelligent. The fact that she included his race, was probably a tip for potential readers that meant something similar to this...

"Hey, this guy is one of the more financially intellignet and talented, you should read his book"...I could be wrong, but yablonsky will weigh in with her true meaning I feel quite sure.....

[smiths]

the Jewish people are known for their financial intelligence. Her reference to his race may have been a compliment

complimentary racism is racism

it was an irrellevant detail and i agree with paz

[vigilant]

I agree with him too, I didn't intend to make it seem like I didn't. Indeed technically it was irrevelant....But I also believe, that if you cannot compliment someone on their race, things have gone a bit "too" far in the sensitivity department....

[11:11]

What do you guys make of this:

French president warns US it cannot allow currency to collapse as Europe suffers from euro's rise, reports Ambrose Evans-Pritchard

The French president, Nicolas Sarkozy, has warned the United States Congress that the US risks triggering "economic war" if it attempts to devalue its way out of trouble by allowing a relentless slide in the dollar.

The stunning remarks came as the greenback plunged to a record low of $1.4731 against the euro, causing a chorus of angry protests from industrial leaders in France and Italy. The dollar breached $2.10 against sterling for the first time since the early Thatcher years in 1981. On Wall Street the Dow tumbled 246.40 to 13,414.50.

Mr Sarkozy spared no sensitivities as he launched into a full-blown attack on the Bush Administration. "The dollar cannot remain solely the problem of others. If we are not careful, monetary disarray could morph into economic war. We would all be its victims," he said.

"Those who admire the nation that has built the world's greatest economy and has never ceased trying to persuade the world of the advantages of free trade expect her to be the first to promote fair exchange rates." Stephen Jen, an analyst at Morgan Stanley, said the dollar fall had become alarming. "This has been driven so far by Middle Eastern and Asian central banks, but there is a risk that hedge funds will start to join in, and they can be very powerful," he said.

"The most dangerous threat is that the yen will snap back and destroy the 'carry trade' before anybody has a chance to unwind positions."

The $1,200bn (£570bn) yen carry trade has been a huge source of liquidity for asset markets. A sudden reversal could cause a shock to the world system, as in 1998.

The dollar's dive came after comments by Cheng Siwei, vice-chair of China's Congress, suggesting that Beijing would switch more of its $1,340bn reserves away from US bonds. "The euro is rising and the dollar is weakening, and we can achieve a better match of the two," he said.

Simon Derrick, a strategist at Bank of New York Mellon, said it appeared to be a slip of the tongue: "The last thing the Chinese need now is a rapidly falling dollar. Their inflation is already running at 6.2pc." Mr Derrick said the world was on the cusp of a full-blown currency crisis. "The Fed is caught between a rock and hard place. It can't keep rates high enough to fight inflation because of the sub-prime crisis."

Mr Sarkozy's comments came after the French luxury goods group LVMH said it was moving production to India. Airbus stands to lose €100m in profits for every one cent rise in the euro, a loss of €1.2bn since August.

Luca di Montezemolo, head of Italy's business federation, said the high euro was having "devastating effects". Even German companies are starting to suffer. Manufacturing orders dropped 2.5pc in September..

Mr Sarkozy words were undoubtedly directed at the European Central Bank before today's interest rate meeting. A German-led group of bank governors is pressing for a rate rise before inflation gets out of hand. Any such move would set off a political storm in Europe.

http://www.telegraph.co.uk/money/main.j ... rko108.xml

[Byrne]

.

Take a look at this chart for the Footsie, in particular from 3:45 to 4:30.

http://finance.yahoo.com/q/bc?s=%5EFTSE&t=1d


(I don't know how to capture that image. If anybody can, please post.)

Anti,
I noticed these major 'blips' on the Footsie idex chart yesterday. They are viewable (today) on the 5 day chart here:
http://finance.yahoo.com/q/bc?s=%5EFTSE&t=5d

Searching on the BBC today, I found this:

Last Updated: Wednesday, 7 November 2007, 21:20 GMT

Confusion on London stock market

Data problems have disrupted trading

Trading on the London stock market was thrown into confusion after technical problems resulted in misleading information being published. In a highly unusual move, trading on the London Stock Exchange (LSE) was extended to 1800 GMT after terminals in the City displayed incorrect prices.

These showed the benchmark FTSE 100 closing up on Wednesday, even though it was sharply down for most of the day.

The LSE blamed the disruption on problems with "data dissemination".

Data issues

This resulted in incorrect figures for the FTSE 100 and for the performance of some individual company shares being displayed.

The LSE said it had experienced problems with "data feeds" at 1600 GMT, about half an hour before the market's normal close.

These "connectivity problems" had affected price information which providers such as Reuters and Bloomberg sell on to traders and other City professionals.

Revised figures after the extra's hour trading showed the FTSE 100 down 54.8 points at 6420.1, with shares of leading banks and mortgage lenders under continuing pressure.

The disruption to trading will be a serious embarrassment for the LSE, one of the world's largest stock market operators.

It recently acquired Italy's Borsa Italiana for £1.6bn, a deal which the LSE said would create Europe's largest market for trading shares.

Source:BBC News

So the LSE wasn't showing the true extent of the falls in the market. Did the "data dissemination" problems soften the market blow?

Shares are also dropping this morning, see:
http://news.bbc.co.uk/1/hi/business/7084462.stm