Some points on Debt…..
On December 15, 2010, in the GEAB N°50, LEAP/E2020 anticipated the explosion of Western government debt (1) in the second half of 2011. We were then describing a process that would start with the European government debt crisis and then set fire to the heart of the global financial system, namely US federal debt (2). And here we are with this issue at the start of the second half of 2011, with a global economy in complete disarray (3), an increasingly unstable global monetary system (4) and financial centres in desperate straits (5), all this despite the thousands of billions of public money invested to avoid precisely this type of situation. The insolvency of the global financial system, and of the Western financial system in the first place, returns again to the front of the stage after just over a year of political cosmetics aimed at burying this fundamental problem under truckloads of cash.
We estimated in 2009 that the world had about 30 trillion USD in ghost assets. Almost half went up in smoke in the six months between September 2008 and March 2009. For our team, it’s now the other half’s turn, the 15 trillion USD of ghost assets remaining, purely and simply vanishing between July 2011 and January 2012. And this time, it will also involve government debt, unlike 2008/2009 where it was mostly private players who were affected. To gauge the extent of the coming shock, it is worth knowing that even US banks are starting to reduce their use of US Treasury Bonds to guarantee their transactions for fear of the increasing risks weighing on US government debt (6).
For the financial world’s players, the Autumn 2011 shock will literally be the ground giving way beneath their feet, since it’s really the foundation of the global financial system, the US Treasury Bond, which will plunge sharply (7). Full article,
Some points on the Sentiment Indicators by Technical Take. Insiders are buying, dumb money rather bearish. Time to buy?
It is always best, in my opinion, to have as many points of light shining on an issue as possible, and what we see from this composite indicator is that the indicators have yet to line up. That is, the “dumb money” indicator is giving a bull signal, but corporate insiders are neutral and the Rydex market timer remains very bullish. It should be noted and as pointed out in Sunday’s sentiment wrap up, corporate insiders are buying, and the buying is the most since August, 2010. However, a buy signal has not been generated yet. I suspect that further selling (i.e., lower prices) or more volatility will have corporate insiders buying. At that point, 2 out of 3 of our sentiment indicators will be flashing buy signals.
Several anomalies are worth noting, but I do not believe that they affect the current course of action — which is to be bullish when others are bearish. Corporate insiders were buying the dips throughout the 8 month 2007/ 2008 market topping process. In addition and like now, the Rydex market timers did not confirm the bullish signals coming from the “dumb money” indicator and corporate insiders.
This 3 indicator look goes back to 2004, and it is clear from the data that the best bottoms leading to the most sustainable price moves occur when all 3 indicators are in alignment.
Good audio from The Economist on the Greek situation. On of the few objective reporting from Greece has come from the newspaper Kathimerini. Below interview with Alexis Papahelas, editor-in-chief of Greek newspaper Kathimerini, discusses the prospects for progress after a government reshuffle.
Gold is being supported as default risk has increased after EU finance ministers failed to agree on a new Greek loan package. Gold priced in sterling rose to new record nominal highs this morning at £954.84/oz and the weakness of the euro has seen gold rise to touching distance (9 euros) from new record highs in euro terms at €1,088/oz.
Equities have also fallen and Greek bonds are under selling pressure again – as are Portuguese bonds. The Eurozone debt crisis is creating the real risk of global financial contagion. Interbank and commercial paper markets are increasingly nervous about the ghosts of the Lehman Brothers collapse.
Silver continues to consolidate between $33/oz and $39/oz (see commentary below).
The cost of borrowing euros for three months in the interbank market continued to rise today with the three month Euro Interbank Offered Rate, or Euribor, fixed at 1.510%, up from 1.502%.
Corporate borrowing costs in the U.S. as measured by U.S. swaps rose sharply from 20 to 26.99 last week – the highest so far in 2011.
Gold and silver continue to consolidate at these levels after their most recent sell off. Concerns that gold is a bubble remain high – especially amongst those uninformed about the fundamentals of the gold market (see Commentary).
Societe Generale SA raised its third quarter gold forecast by $90 to $1,580 an ounce and silver by $3.50 to $42 an ounce.
Silver appears to have found its footing in May and June and looks like it is consolidating between $33/oz and $39/oz.
Silver in U.S. Dollars – 3 Months (Daily)
Further short term weakness may be seen and volatility should be expected but the long term fundamentals remain as sound as ever.
Silver continues to get little or no media coverage despite the recent surge in price. This is an indication of the lack of animal spirits and irrational exuberance from mainstream participants in the silver market.
Silver remains a fringe investment and silver bullion is owned by a small fraction of investors in the U.S. and by an even smaller fraction of investors and savers in Ireland, the UK and EU.
Another good indication that the worst of the selloff in silver is over is seen in the latest Commitment of Traders (COT) data.
The U.S. Commodity Futures Trading Commission data for the week ended June 14, shows that hedge-fund managers and other large speculators decreased their net-long position in New York silver futures again last week.
.SILRG Index Silver Large Specs, futures – Net long Positions
Speculative long positions or wagers that prices will rise, outnumbered short positions by 16,587 contracts on the COMEX division of the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 412 contracts, or 2 percent, from a week earlier. This is the lowest position since the first week of February 2010.
Net long positions are now near the levels seen late August 2007, late 2008 and in 2009 – which were all good silver buying opportunities.
While silver has had a large run up those continuing to focus solely on price and not on value and the actual real world tight supply and demand situation will continue to not understand the silver market and the importance of a diversification into silver in order to protect against sovereign, currency and systemic risk.
Courtesey Gold Core
Austerity we hear, but how is the process of getting the Spanish Economy progressing?Not so well unfortunately. Debt accumulated by Spain’s regions during the first quarter has hit a historic 11.4 percent of the GDP, according to Bank of Spain figures released on Friday. The problems in Spain, are according to Thetrader very big and the situation in Greece, will spill over to Spain. As we noted this morning, Spanish borrowing rates are breaking to the upside. Expect renewed protests, and the M 15 movement regaining it’s strength. Watch out for the Spanish Toro. El Pais reports;
Spain’s 17 regions owe some 121.420 billion euros with Catalonia leading the pact with 34.323 billion euros in outstanding bills. The Catalan figure represents 28 percent of the total debt calculation. Valencia comes in second owing 17.895 billion eurosfollowed by Madrid at 14.111 billion euros. All are governed by the Popular Party.
Despite the central government’s insistence on belt-tightening measures, Friday’s figures reflect concerns the regions have yet to rein in a spending splurge. At the end of 2010, regional debt stood at 10.9 percent of GDP. But the latest figures show that regional debt has swollen by more than 26 percent since then. The EU has said legal limits should be imposed on regional budget deficits.
The Canary Islands, governed by the Canaries Coalition, and Galicia, ruled by the PP, were the only two regions which were able to contain their spending and keep debt levels stable.
Following the May 22 local races, the problems facing Spain’s cash-strapped regions have been the focus of international investors and analysts as they try to gauge whether Spain can avoid a European Union bailout.
Mike Riddell, manager of the M&G International Sovereign Bond fund in London, told Investor Week on Friday that Spain is facing the same danger of default as Greece, Ireland and Portugal. “For Spain’s debt levels to stabilize, either Spain’s borrowing costs will need to halve or it will have to run a large sustained budget surplus to make up this gap.”
The gentlemen above seem rather cheerful. Kathimerini reports on the failure of reaching an agreement on saving Greece.
Finance ministers from eurozone countries agreed during a meeting early on Monday that they would decide in early July the main outlines of a second bailout for Greece, including private-sector contributions.
“We have agreed today that the contribution (of the private sector) must be voluntary, but … Greece also has to deliver,” said the head of the Eurogroup Jean-Claude Juncker in the early hours of Monday.
“If you aim for a voluntary private contribution you can’t fix what size it must be beforehand. That also has to be discussed with private creditors.
Juncker emphasized that Greece had to keep its side of the agreement by passing further austerity measures.
“We very much depend on Greece’s parliament passing all bills and we will discuss more about the role of private creditors at the beginning of July, but the role will be voluntary and we will have to check whether Greece will by then have fulfilled its obligations.
“As the vote by the Greek parliament has been fixed for the end of June, we cannot make an engagement without knowing if the Greek parliament after having voted on the no-confidence vote endorses the commitments made by Greece (to the EU and IMF).”
Earlier, Greece’s new finance minister, Evangelos Venizelos, insisted that Greece would stick to its plan for putting public finances in order.
“It is a great opportunity for me to repeat the strong commitment of the Greek government and the strong will of the Greek people for the implementation of the program,» Venizelos said as he headed into the conference centre for the meetings Sunday.
“We can achieve our target, thanks to the efforts of our people, and thanks to the cooperation and the assistance of our partners,» he added.
The eurozone finance ministers issued the following statement on Greece after their talks:
“The Greek authorities are embarking on a significant and necessary adjustment effort.
Ministers recognised the considerable progress achieved by the Greek authorities over the last year, particularly in the area of fiscal consolidation. Ministers are also conscious of the serious challenges that Greek citizens are facing in these difficult times.
Ministers took note of the debt sustainability assessment prepared by the Commission and the IMF. The assessment showed that debt sustainability hinges critically on Greece sticking to the agreed fiscal consolidation path, the plans of collecting 50 billion euro in privatisation proceeds until 2015, and the structural reform agenda which will promote medium-term growth.
Ministers look forward to the Commission’s Compliance Report, that requires the finalisation of the updated Memorandum of understanding, which is expected in the coming days, reflecting the outcome of the ongoing negotiations between the Greek government and the European Commission, in liason with the ECB, and the IMF.
This, together with the passing of key laws on the fiscal strategy and privatisation by the Greek parliament, will pave the way for the next disbursement by mid-July.
However, given the difficult financing circumstances, Greece is unlikely to regain private market access by early 2012.
Ministers agreed that the required additional funding will be financed through both official and private sources and welcome the pursuit of voluntary private sector involvement in the form of informal and voluntary roll-overs of existing Greek debt at maturity for a substantial reduction of the required year by year funding within the programme, while avoiding a selective default for Greece.
On these conditions, ministers decided to define by early July the main parameters of a clear new financing strategy.
Ministers call on all political parties in Greece to support the programme’s main objectives and key policy measures to ensure a rigorous and expeditious implementation. Given the length, magnitude and nature of required reforms in Greece, national unity is a prerequisite for success.”
Both China and India have or are breaking down from big chart formations. Remember, the only place with growth, and the markets supposed to lead us higher, are these two emerging markets. It sure won’t be the PIIGS nor the US to take us out of the economic situation. (Note GS lowered the US GDP frpm 3%).
Also don’t forget those interbank SHIBOR rates, kicking it higher. Liquidity drying up….
“In a time of deceit telling the truth is a revolutionary act.” – GEORGE ORWELL
Full must read report, Hmmm Jun 19 2011
Back in the dog days of October 2008, The Consumerist published a piece on its website called ‘12 Signs You’re Addicted to Debt’. This public-spirited piece was designed to help people recognize an addiction to debt that might topple them over the edge of the abyss
in the new, post-Lehman world of fear and desperation. You remember that world, right? Lehman had just collapsed? The world was about to spiral into a nightmare the likes of which hadn’t been seen in a generation? You remember, surely? The ‘GFC’? The ‘Great Recession’? No? But we all said it was a watershed that would change our behaviour for decades to come. We all swore never to forget how close we came; how terrified we all were.
Ah well, let me refresh your memories – it was, after all, almost three long years and trillions in stimulus dollars ago. Back then, we all promised each other that if we could just make it through the storm we’d be different. We’d downsize, rid ourselves of the debt, borrow less, spend less, save more. We didn’t need that extra flat-screen TV or that jet ski. Just get us through and we’ll find financial religion.