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XMFSinchiruna (27.77)

Europe in Crisis - Don't think for a minute this means the U.S. is in better shape.

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39

February 08, 2010 – Comments (12)

Well, Fools, extraordinary events are underfoot, but with a Superbowl weekend and the Olympics looming you'd hardly know it tracking the American "press". For a broader view, it is crucial to head outside of the country for one's news. I have repeatedly pointed to Ambrose Evans-Pritchard as a fine source, even though I believe he does not fully comprehend the mechanics at play. Although occasionally flawed in my view with errant interpretations, his coverage nonetheless offers some of the best treatment of critical topics in global finance throughout this crisis.

Greek Ouzo crisis escalates into global margin call as confidence ebbs

"Flow data shows an abrupt withdrawal of German and Asian capital from Club Med debt markets. The EU's refusal to offer Greece anything beyond stern words and a one-month deadline for harsher austerity – while admirable in one sense – is to misjudge how fast confidence is ebbing. Greece's drama has already metastasised into a wider systemic crisis. The world risks a replay of the Lehman collapse if this runs unchecked, this time involving sovereign dominoes." 

While you're at it ... you might as well just bookmark Ambrose Evans-Pritchard's article page:

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/

 

Fears of Lehman-style Tsunami as crisis hits Spain and Portugal

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7159456/Fears-of-Lehman-style-tsunami-as-crisis-hits-Spain-and-Portugal.html

"Julian Callow from Barclays Capital said the EU may to need to invoke emergency treaty powers under Article 122 to halt the contagion, issuing an EU guarantee for Greek debt. “If not contained, this could result in a `Lehman-style’ tsunami spreading across much of the EU.”

 

Japan's high-risk strategy shift

"The change of tack by the world's second largest economy sparked jitters on Tokyo's bond markets and may have implications for the global currency system, leading to a revival of the yen "carry-trade" that helped fuel the last international asset bubble."

 

Meanwhile, G7 finance ministers are meeting so far up in the Canadian Arctic that you'd have to rent a dog sled team to stand outside a chilly no-free-speech zone. Perhaps they didn't want a repeat of this embarrassing mis-step from the meetings in Italy last summer.

Your national debt ceiling has been raised to $14.3 trillion dollars. Do you not recall how recently we notched beyond the $10T mark?

 

Let me pose this question to you. Before you assume that the dollar will continue to exhibit counter-cyclical strength as the Euro tanks and the Yen is placed back onto the firing line, do we not have our own Greece in California? Do we not have our own Spain in New York or Pennsylvania? 

Look at the debt to GDP of the so-called PIIGS nations (Portugal, Italy, Ireland, Greece, and Spain). The U.S. fits right around the middle of the pack.

Before you sigh in relief at the thought of foreign currencies more impaired than our own, save your breath. The U.S. dollar is no safe haven, and at some point one has to ponder the notion of a world in which fiat currencies writ large are facing collective devaluation in a manner that force gold to break away from its dollar-centric correlation ... revaluing instead against each of the impaired currencies simultaneously. If the Euro, Yen and USD see simultaneous weakness, then gold will rise no matter what the USDX does.

Unfortunately, the things I have been trying to warn my fellow Fools about for more than 3 years now are about to become obvious. The scale of the derivative meltdown will become apparent. The extent to which the reflation strategy will remain the fiscal law of the land is matched only by the unimagineable harm that this will do to the purchasing power of your hard-earned dollars. Recovery is not just a myth ... it's a lie. Deflationary collapse is not a politically feasible outcome, and therefore we will have an inflationary one. Those that have resumed their investing activities in a "business as usual" way, failing to shift their entire fiancial paradigms to reflect the ramifications of the failure that is still underway, will once again be shocked at the breadth of our collective financial predicament. Those believing the declarations that we are out of a recession are perhaps technically correct ... since we were never in one. No, from the very beginning, this meltdown was indicative of a depression of epic proportions. Think the latest $100 billion jobs programis the last stimulus package we'll see? Think again. Think the word bailout is a thing of the past? Then ask yourself how many states the U.S. can afford to let slip into default. If you are preparing for deflation, then you may just be underestimating the lengths to which those in power will go to maintain their hold on power by reflating a broken system.

The banksters have done it again. As they have so many times throughout modern history, they have robbed us blind. The financial "geniuses" who collected fortunes peddling OTC derivatives have played roulette with our future ... and lost. The geeks at AIG who buried that company are now earning massive bonuses. The trading houses are market makers, and also market breakers. Everything our founding fathers warned us against has come to pass yet again, as meaningless paper has again hijacked the interests of the people for the fleeting wealth of the few.

The years ahead will not be easy. I wish each of you the very best of luck in adapting, and implore any of you who have not already done so to ease the shock of adaptation through preparation.

 

12 Comments – Post Your Own

#1) On February 08, 2010 at 1:05 AM, topsecret10 (< 20) wrote:

Commodities / Gold and Silver 2010 By: Jim_Willie_CB

A great disconnect exists in the gold market between the exchange futures contract price (the paper price) and the gold bullion paid price for transactions (the physical price). The differential in price is growing wider, enough to place tremendous pressure on the gold market itself. Look not to the gold premium paid for purchases, but to high volume purchases in the tens of million$. In mid-December, almost every demand for gold contract delivery was matched by a cash delivery, complete with 25% bonus premium offered. The officials even produced a new ledger item called 'Cash For Delivery' that was necessary to balance their badgered books. It prompted little attention. Some call it a basic bribe. Others call it a technical default. Fast approaching is the event of GAME OVER for London, a condition that has already reached critical level, according to a key reliable source of information with London connections and direct experience with its market events. How long can a major metals exchange sell contracts but have miniscule supply of gold in their vaulted possession? The paper gold market and the physical gold bullion market have finally separated in a practical manner, meaning actual gold has almost no role anymore in London paper contract settlement. The absence of gold in London requires extraordinary tactics to settle contracts and to obtain gold bullion. Red tape procedures delay delivery for individuals, and bribes accompany gold delivery demands as standard practice. The London Bullion Market Assn has almost zero gold, its supply having been drained in high volumes since early December, a process currently in acceleration. The opportunity to convert fiat money into precious metal at prices considered reasonable is also vanishing. The London gold banker said, http://www.marketoracle.co.uk/Article16987.html

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#2) On February 08, 2010 at 1:10 AM, topsecret10 (< 20) wrote:

Gold to Benefit from Inevitable More Bailouts Commodities / Gold and Silver 2010 Feb 07, 2010 By: Adam_Brochert

Public and private debt will be printed up out of thin air and used to replace the bad private and public debt plaguing the financial world. As the insanity progresses, more and more will turn to Gold. Whether we are headed for an implosion that is deflationary, inflationary, or both, confidence in our current financial system will become mortally wounded. This is why the Dow to Gold ratio will reach 2 and may even go below 1 this cycle. It's a confidence cycle as well as an economic cycle.   http://www.marketoracle.co.uk/Article17076.html

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#3) On February 08, 2010 at 2:57 AM, uclayoda87 (29.20) wrote:

Gold Finds Support at $1,000 an Ounce
BY MATT WHITTAKER  WSJ    Feb 8, 2010

The selloff in gold in recent days has brought the price of the metal closer to what some investors consider to be a more rational level.

Though prices could fall more, there appears to be plenty of support for gold around $1,000 an ounce. The recent decline has cleared some of the short-term speculators out of the market, and could spur demand from buyers in India and China.

"At the very least, some degree of irrational exuberance will be shaved off by fear, and a corresponding degree of level-headed sobriety could come in and replace it," said Kitco Metals analyst ...

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#4) On February 08, 2010 at 3:34 AM, uclayoda87 (29.20) wrote:

 

Feb. 7, 2010, 11:37 p.m. EST  

Gold climbs as much as $20 on Globex

By Myra P. Saefong, MarketWatch

TOKYO (MarketWatch) -- Gold futures climbed as much as $20 an ounce on Globex by Monday morning in Asia, finding support after tallying a loss of more than $65 during a losing streak that spanned three sessions in a row.

Gold markets are "rallying on ideas recent selloff is overdone," said Darin Newsom, a senior analyst at Telvent DTN, adding that he hasn't seen any financial or economic news "to indicate widespread change."

Gold for April delivery tapped a high of $1,073 in electronic trading on Globex and was up $14.10 at $1,066.90 in afternoon trading in Tokyo.

April gold slumped on Friday, posting a fall of $10.20 by the close as a drop in the U.S. jobless rate couldn't offset a surge in the dollar, which jumped to 8-month highs against the euro on fears about sovereign debt in Europe. See Friday's metals column.

"Investors will eventually be realizing that shifting money from Greek, Portuguese and Spanish bonds to the supposed safe haven of U.S. Treasurys or German bunds isn't going to be the solution, since even the 'stronger' countries themselves are facing uncontrollable budget deficit crises of their own," said Martin Hennecke, an associate director at Tyche Group Ltd. in Hong Kong.

"With the safety of U.S. and German debt soon starting to become questioned as well, the default-and-inflation proof asset class of precious metals will most certainly become an increasingly popular investment alternative again," he said in emailed comments.

For now, the gold market has likely "hit an unconfirmed bottom" and traders will "have to see if upside volume materializes," Mark Leibovit, chief market strategist for VRTrader.com, said in a newsletter issued late last week.

Even if the US dollar's strength and commodity weakness persists for several more weeks, the current prices of metals and miners are likely oversold, especially if election year spending spikes in the summer as the Congress goes all in to try to preserve their own jobs.  The recurrent fiscal problems in CA and other states will be peaking just before the 2010 mid-term elections.  Angry voters will likely punish any incumbent who has facilitated the reckless spending or has profited personally from the bailouts.  Both the Republicans and Democrats will be at risk for this historic house cleaning, unfortunately the inflationary momentum will continue for more than a year, even if corrective measure (massive spending cuts) are enactied immediately.

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#5) On February 08, 2010 at 8:55 AM, russiangambit (29.24) wrote:

You know what gets these Eurozone countries? They can't print Euros to cover their debt. While US is printibng dollars do devalue its debt obligations these poor contries actually have to repay the debt with interest. The life is so not fair.

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#6) On February 08, 2010 at 9:03 AM, GNUBEE (24.46) wrote:

Sinch, one small correction, you said "Do we not have our own Spain in New York or Pennsylvania?"

Harrisburg (a City, the Capiatol City) is in trouble yes, the state not so much.

And I was shocked that the raising of the debt ceiling too, how did it not make for a newsworthy story?

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#7) On February 08, 2010 at 10:26 AM, kdakota630 (29.53) wrote:

tmfsinchiruna

Excellent blog, and totally agreed.

For the record, where that G7 meeting is taking place that you referenced, I've actually been about 3 hours flight north of where that meeting is taking place, a total of 5x, three of which were in December/January.

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#8) On February 08, 2010 at 12:22 PM, XMFSinchiruna (27.77) wrote:

GNUBEE

Thanks, I'll go back and check my sources on PA.

When increases to the debt ceiling become routine, you live in an inflationary nation ... regardless of the deflation that the pundits want you to fear.

kdakota630

Cool! I was taking literary liberty with the talk of dog sleds ... is it as remote as I picture it? What brought you that far north, if you don't mind my asking. :)

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#9) On February 08, 2010 at 12:24 PM, XMFSinchiruna (27.77) wrote:

Of course, there's always a bull market somewhere:

http://www.fool.com/investing/international/2010/02/08/the-60-billion-man-australian-coal-magnate-puts-ch.aspx

"The sheer size of this transaction, implying some 600 million tonnes of coal, carries global ramifications … confirming the overwhelmingly bullish long-term outlook for Pacific seaborne thermal coal demand. The 20-year lifespan of the contract speaks to the visibility for continued growth in Chinese coal import demand. This, in turn, speaks volumes to the fundamental rationale for anticipating a continued multi-year secular bull market in industrial commodities on the strength of sustainable Pan-Asian demand. For bulk shippers like Diana Shipping (NYSE: DSX) that are bracing for the impacts of excess global bulk tonnage capacity, projects like this help to ease some concern."

Every Fool is STRONGLY encouraged to consider the underlying message behind this watershed deal!

 

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#10) On February 08, 2010 at 12:46 PM, kdakota630 (29.53) wrote:

TMFSinchiruna

Iqaluit is actually a town of 6,000 according to Wikipedia, and is pretty damn remote.  I've found that when talking about where I was, people can't seem to fathom just how remote a place like that is.  I usually get questions like, "don't they have a McDonalds or something?"  As I recall, it's about a 3 hour flight north of Montreal.

From there, the furthest commercial flight is to Resolute Bay, which is roughly another 3 hours north.  In both cases, you pretty much see NOTHING but snow and mountains, except that Iqaluit is a blip that could be easily missed, and Resolute is an even smaller blip.  It's pretty much entirely populated by Inuit, I think for the purpose of maintaining Canadian sovereignty.

From there, it was a 30-45 minute flight via twin otter northwest to Little Cornwallis Island. When I was there, if I had a compass with me, you'd be so far north that the compass would actually point mainly west, as compasses point to the magnetic north pole and not true north.

If you click that last link you'll see that it used to be a mining camp run by Cominco (now Teck Cominco).  My dad started working there as a mechanic in 1984 I think, and at the time they had a policy in place for workers who wanted to work during Christmas time rather than fly home that they'd fly families up.  So I was there in 1984, 1985, and 1987 I believe, and then as a student I got hired for the summers of 1991 and 1993.

 

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#11) On February 08, 2010 at 5:02 PM, APJ4RealHoldings (33.53) wrote:

Uh I believe US IS in better shape.  Less leveraged and more transparency. And more worldwide influence as one nation through military presense. 

We ARE in very BAD shape, but not as bad as Europe. 

Duh

;)

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#12) On February 10, 2010 at 10:14 PM, tonylogan1 (28.11) wrote:

Congratulations. Rec 10,000

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