Thursday, 9 December 2010

Losing Control.

Baltic Dry Index. 2144 -29

LIR Gold Target by 2019: $30,000. Revised due to QE.

"We have long-term concerns about the US rating outlook and they're not yet being addressed," said Stephen Hess, chief US analyst for Moody's.

Today a break from the Euro on the brink of disintegration. While Ireland adjusts to its new status of debt slave to Brussels and Berlin, across the Atlantic the bond vigilantes reappeared out of nowhere, after an absence of 25 years. From London it’s starting to look like the US authorities have lost control of the agenda. Stay long precious metals. The downside of fiat currency is knocking at the door. Has a 30 year bull market in US bonds just ended? If so, we are in for a very different investment world. What happens to US bond yields in the next few days is critical. If the bond rout continues, a stock market crash comes next. The next Lehman follows as night follows day. Forget Ireland if that happens, we all become Ireland in one way or another. We appear to be headed for the Great Christmas Crisis of 2010.

"When paper money systems begin to crack at the seams, the run to gold could be explosive."

Harry Browne

Global bond rout deepens on US fiscal worries

Agreement in Washington on a fresh fiscal package has set off dramatic rise in yields of US Treasuries and bonds across the world, threatening to short-circuit any benefits of stimulus. The bond rout raises concerns that the US authorities may be losing control over events.

By Ambrose Evans-Pritchard 8:03PM GMT 08 Dec 2010

The yield on 10-year Treasuries – the benchmark price of money worldwide and the key driver of US mortgages rates – has rocketed to 3.3pc, up 35 basis points since President Barack Obama agreed on Monday to compromise with Senate Republicans on tax cuts.

The Treasury sell-off has ricocheted through the global system, triggering bond sell-offs in Asia, Europe and Latin America. Japan's finance ministry braced as borrowing costs on seven-year debt jumped by a sixth in one trading session, while German Bunds punched through 3pc.

The White House deal with Congress will renew the Bush tax cuts for rich and poor alike for two years, as well as adding a further a 2pc cut in payroll taxes and an extension of unemployment aid.

David Bloom, currency chief at HSBC, said it is hard to disentangle whether investors are shunning bonds because they expect US stimulus to boost growth next year, or whether they are losing patience with profligacy in Washington.

"If this is all about growth, that's brilliant. But if yields are rising because people think Amirca's fiscal situation is unsustainable, then its armaggedon," he said.

"The US can get away with this only because it is the world's reserve currency. This would be totally unacceptable in any other country. We think these problems will start to crystallise for the US in the second half of 2011, once the European debt crisis has stabilised," he said.

The warnings were echoed by Li Daokui, a rate-setter for China's central bank. "The focus of the market is still in Europe, but we must be aware that the US fiscal situation is much worse than in Europe," he said.

The US tax deal adds $1 trillion of stimulus over two years, according to BNP Paribas. America's budget deficit will remain stuck near 10pc of GDP, not just in 2011 but also in 2012. This will push gross public debt to 110pc of GDP under the IMF definition, near the brink of a debt compound spiral. The contrast with fiscal tightening in Europe has become starkly evident.

---- Stephen Lewis, from Monument Securities, said the bond rout is a sign that Washington can no longer take global markets for granted. "We have reached the limits of tolerance for budget deficits. There is a feeling around the world that nobody in Washington is paying any attention to the implications of what they are doing, but there is a very real risk that this will backfire if it causes mortgage rates to keep going up," he said.

"At the same time we've seen a loss of confidence in Fed strategy. There is a feeling that the Fed doesn't care about inflation – in fact, wants more of it – and that is certainly not in the interest of bondholders," he said.

QE2 pushing interest rates up and not down

Posted on 09 December 2010

US mortgage rates have risen by 0.85 per cent since the Federal Reserve first signaled its intension to go for a second round of quantitative easing three months ago. And this week the yield on 10-year US treasuries is up 0.35 per cent to 3.3 per cent in a widespread global sell-off of T-bonds.

This is not supposed to be how QE2 works. The whole point of this $600 billion exercise is to squeeze interest rates down, and keep them down to give the US economy breathing space to recover.

---- Analysts said America’s budget deficit will now stay around 10 per cent for the next two years. Public debt of 110 per cent is close to debt spiral levels – when a country’s debt starts to expand because the interest is not being fully paid.

The US can only hope to get away with this because the dollar is the reserve currency of the world. But the Fed now has to raise around $100 billion in treasury bond sales a month to keep this show on the road.

Will the world be happy to buy US bonds for much longer if the value of bonds continues to fall? Nobody wants to buy an asset whose price is falling. And lest we forget how it works, as interest rates go up bond prices go down.

That leaves the Fed itself as the buyer of last resort. But as we now see QE2 does not actually seem to be working as expected. All market forces have inflection points and the Fed may have made a fatal misjudgment.

"The history of paper money is an account of abuse, mismanagement, and financial disaster."

Richard M. Ebeling

At the Comex silver depositories Wednesday, final figures were: Registered 49.06 Moz, Eligible 57.72 Moz, Total 106.78 Moz.


Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

No crooks today just snow, ice, doom and gloom. Western Europe in the grip of our new ice age. If the forecasters are even halfway right about what’s coming next, winter 2010-2011 will go down in the record books. Everyone laughed at those nutty Polish scientist and their worst winter in a thousand years warning. There’s a better than outside chance now we might come close.

Snow shuts Paris airport, bus system

Wed Dec 8, 10:10 am ET

PARIS – Heavy snowfall has forced the closure of Paris' Charles de Gaulle airport and shut down the Paris bus system.

The Paris airport authority says flights in and out of Paris' main airport are suspended until around 5 p.m. local time Wednesday (1600 GMT).

Snow quickly turned into a slushy mess in Paris' streets, stalling traffic. Paris' RATP transport network says all buses in the capital have stopped running, as have many suburban buses.

Heavy snowfall is unusual in Paris. Some shop owners are busy sweeping slush off the sidewalks, while Parisians and tourists alike are cautiously braving the slippery roads.

Forecasters warn Christmas could be cancelled as cold weather grips UK

December 8, 2010

Christmas will have to be put on hold this year as the ‘once in a lifetime’ cold snap threatens to tighten its grip on ice-bound Britain, forecasters are warning.

Festivities are facing a white-out with the return of snow next week and Arctic conditions set to continue beyond the 25th.

It means drivers are being warned not to travel in the run-up to Christmas, when millions hit the roads to visit relatives or to do last-minute shopping.

Chaos across the transport network could mean gifts sent through the post do not arrive in time and shops will run low on food and other essentials.

AA spokesman Gavin Hill-Smith said: ‘If it is really treacherous then people may well have to delay travelling and have their Christmas the following week. Safety comes first.’

The earliest widespread wintry blast for 17 years has already crippled the transport network and claimed at least 13 lives.

Forecasters predicted a brief respite this weekend but a fresh six inches of snow could fall next week, with temperatures plummeting as low -20C in Scotland and northern England. There is no sign of a let-up before the festive period and a strong possibility of a white Christmas.

Brian Gaze, of independent forecaster The Weather Outlook, said: ‘This cold spell is a once-in-a-lifetime event. We’ll probably never see it again.’

"Betting against gold is the same as betting on governments. He who bets on governments and government money bets against 6,000 years of recorded human history."

Gary North

The monthly Coppock Indicators finished November:

DJIA: +178 Down. NASDAQ: +247 Down. SP500: +167 Down.

The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. November is the sixth down month in a row.

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