Mish's Global Economic Trend Analysis |
- Plague of Gold Bears Now Say "Gold Unsafe at Any Price"; What's the Real Long-Term Driver for Gold?
- Draghi Announces ECB Exit From Easing Remains Far Off; Think the Fed Has an Exit Strategy?
- Italy Faces Huge Losses on Derivatives Restructured in Eurozone Crisis
| Plague of Gold Bears Now Say "Gold Unsafe at Any Price"; What's the Real Long-Term Driver for Gold? Posted: 26 Jun 2013 01:18 PM PDT Over the past week I received numerous emails regarding my June 13 post Mish Buys a Basket of Miners. People want to know if I am still in the trade. Others taunted they will be buying when I selling. Well good luck with that idea, because this is an investment not a trade. One reader proposed "My prediction is when the Fed finally stops printing, gold will drop to $750 and when they start raising rates gold will drop to $500. What do you say about that?" I answered "Your prediction seems as silly as those who knew gold would be at 2400 or even 3000 by now. No one can accurately predict such things." I bought with the intention of holding for a lengthy period, stating "I believe precious metal miners represent true value, but I cannot state when the market will come to the same conclusion." What's changed? The answer is "nothing". So am I selling? Of course not, and it seems silly to even ask. Anti-gold sentiment is amazing, but sentiment alone is not a good timing factor. It can always get worse. A Plague of Gold Bears and The 'Tapering' Myth Acting Man touched on the sentiment theme in A Plague of Gold Bears and The 'Tapering' Myth. Readers may recall that in 2010 and 2011, after largely ignoring the fact that gold had been going up for more than a decade, virtually all the major mainstream banks and brokers suddenly turned bullish on gold. It was a huge warning sign as we now know with the benefit of hindsight (and as a few people suspected at the time). At the time target prices for gold were all of a sudden raised by all these worthies. Not even one of them sounded an alarm. Grave Dancing I invite you to read the rest of the article because it's worth a closer look. Curiously, Just as Acting Man discussed above, talking heads say the stock market is up today because the lower GDP print means the Fed will not taper bond purchases, yet tapering is bad for gold. For discussion of ECB and Fed tapering as well as the unexpected slowdown in US GDP, please see Draghi Announces ECB Exit From Easing Remains Far Off; Think the Fed Has an Exit Strategy? What's the Real Long-Term Driver for Gold? Most analysts are totally clueless about gold and gold markets. They cite jewelry, mining production, central bank sales, and all sorts of other irrelevant factors in their analysis. If you really want to understand what gold is all about, I suggest you read an interview on Gold Switzerland with Robert Blumen: "What's really key for the price formation of gold?" Blumen discusses assets vs. consumption, mine supply, jewelry, marginal demand, the alleged (and nonexistent "gold deficit"), and sentiment. Blumen does not offer much commentary on the GATA price manipulation thesis other than say it's "plausible". I suggest most of what GATA says is at best strongly over-hyped, including the GATA alleged "gold deficit" (a point on which Blumen agrees). Rather than excerpt the interview, I simply suggest you read the article in entirety, save this one humorous anecdote at the end: "People who say [gold is in a bubble]did not identify the equity bubble, did not believe that we had a housing bubble, nor have they identified the current genuine bubble, which in the bond market. But now these same people are so good at spotting bubbles that they can tell you that gold is in one. Most of them did not identify gold as something which was worth buying at the bottom, have never owned a single ounce of gold, have missed the entire move up over the last dozen years, and now that they're completely out of the market, they smugly tell us for our own good that gold is in a bubble and we should sell." Unsafe At Any Price Indeed, sentiment has soured so much that MercBloc president Dan Dicker says Gold Is Unsafe at Any Price I leave it to the reader to decide if that headline is even more ridiculous than UBS Says QE's End May Render Gold 'Obsolete' Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Draghi Announces ECB Exit From Easing Remains Far Off; Think the Fed Has an Exit Strategy? Posted: 26 Jun 2013 10:10 AM PDT The Financial Times reports ECB exit from easing remains far off, Draghi says. Speaking to committees in the French lower house of parliament, Mr Draghi said there were still downside risks to growth in the eurozone economy and the ECB was ready to take fresh action if needed.Taper Talk on "Strength" of US Economy Bernanke says the US economy is solid enough that the Fed can begin tapering its balance sheet purchases later this year. Given the stock and bond market bubbles the Fed has created, the Fed of course should taper (not that it should ever have expanded its balance sheet in the first place). 4th Quarter GDP barely crossed the zero line with 0.4% growth. That growth was via questionable GDP deflators. Today, 1st Quarter GDP came it at 1.8% annualized, a dramatic downward revision from an estimate of 2.4% released last month. In turn, 2.4% was a downward revision from the first estimate of 2.5%. GDP Trends  click on chart for sharper image The above chart is courtesy of Doug Short at Advisor Perspectives who reports GDP Q1 Third Estimate at 1.8%: A Surprising Downward Revision Note the linear regression trend of lower GDP over time. Taper vs. Exit There is absolutely no chance the Fed has any real "exit" strategy other than to hold its entire bloated balance sheet to maturity. If the Fed "tapers" its purchases, it will not be because the economy is picking up steam, but rather because the Fed is clueless about the prospects for the economy, or perhaps out of very belated concern over the stock and bond market bubbles that it has created (nothing the Fed would ever admit of course). Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Italy Faces Huge Losses on Derivatives Restructured in Eurozone Crisis Posted: 26 Jun 2013 12:42 AM PDT The Financial Times notes that Italy faces billions in losses on Derivatives Restructured in Eurozone Crisis. Italy risks potential losses of billions of euros on derivatives contracts it restructured at the height of the eurozone crisis, according to a confidential report by the Rome Treasury that sheds more light on the financial tactics that enabled the debt-laden country to enter the euro in 1999.The facts seem difficult to piece together, but the amounts are significant. Some of the derivatives date back to 1994-1996 when Italy dressed up its finances to meet Maastricht treaty criteria, including a budget deficit less than 3 per cent. "Italy had a budget deficit of 7.7 per cent in 1995" but the deficit magically shrunk to 2.7% in 1998, the approval year for Italy joining the eurozone. The odds of that being legitimate are approximately zero percent. ECB president Mario Draghi was head of the Italian central bank at the time much of this took place, so it's no wonder details are scant. Recall that Bloomberg lost a freedom of information lawsuit against the ECB regarding derivatives used to hide Greek debt on the basis "disclosure of the files would have undermined the protection of the public interest so far as concerns the economic policy of the European Union and Greece". I would be far more interested to see the complete Italy files, but clearly that's not going to happen either. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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