The best Defense is a good Offense. The EU is firing an attack on the bias among the “all US” rating agencies. According to Baroso, Merkel and other politicians, the agencies just don’t understand how good Europe Peripheral countries are. Reuters reports;
BRUSSELS (Reuters) – Europe issued a full-throated assault on credit ratings agencies on Wednesday, saying there were signs of bias against the European Union after Moody’s downgraded Portugal’s debt to “junk” status.
European Commission President Jose Manuel Barroso said Moody’s decision to lower Portugal by four notches and maintain a negative outlook was fuelling speculation in financial markets. Europe was looking at getting away from its reliance on the mainly U.S.-based ratings companies and weighing possibilities for legal redress, he added.
His view was seconded by Germany’s finance minister, Wolfgang Schaeuble, who said Portugal’s downgrade was totally unjustified in present circumstances, when the country was taking steps to put its finances in order.
With the market having climbed quite a lot during the past 10 days, it is time to reconsider the bullish short term bounce we argued would happen. Markets reached oversold levels, with a overly pessimistic sentiment. It got to an extreme, and reversed with the first Greek vote. With the relatively low volume melt up we have seen, we see limited upside short term, and would be tacking chips off the table. A break above resistance levels, should be surprising, and would most probably be a false break out, if it were to happen. With VIX once again having collapsed, we think picking up cheap vol for the report season/autumn is a good trade. Below some further thoughts by Technical Take.
I define the price cycle as the path that prices take from low to high and back again, and I use investor sentiment to help me characterize where we are in the cycle. For example, if prices are at their highs, then most likely investors are bullish; conversely, if markets are getting slammed, then investors are probably bearish. The use of investor sentiment isn’t so unique that I have any great insight, but it is how I use that data to help generate an edge.
As you know, investors were extremely bearish several weeks ago, and this is typically a bull signal. As you can see, the “dumb money” indicator, which is a weekly chart of the SP500, is shown in figure 1. This was a bull signal, and as if right on cue, the markets lifted 5%. Holy grail? No, no, no.
Figure 1. SP500/ weekly
As Fed is printing enjoy Sprott’s view on bullion prices.
Interview with Eric Sprott on Bullion prices to go supernova.
“I think that the prices will continue higher. I mean the amount of money printing is unbelievable. I just think you have to take that initial stand in terms of buying it. I use the James Turk analogy: just keep dollar averaging. We have gone up eleven years in a row, this year it looks like it will be no exception; I would certainly think next year will be no exception. If we ever have QE3 announced, I think gold and silver will just go absolutely bonkers here. And so I just think you have got to step in there and own it; we’ve had these fears all the way along. You know, $400, and $500 and $700 and $800 dollar gold, everyone was afraid it was a one-time thing. I don’t think it is a one-time thing, I think it is a secular thing. It’s going to carry on for quite a while here until we find some resolution of these problems. And the resolution probably will be some form of default where people just have to expunge debts that cannot be repaid. So, you have got to be in some asset which will not be affected by that.”
So predicts Eric Sprott, founder of Sprott Asset Management and famed investor. In this wide-ranging interview, he shares his insights on the precious metals markets – specifically what investors need to be aware of in terms of the way the markets are currently managed (maniuplated), the macro outlook for the economy (grim) and the true value of gold and silver (very underpriced; particularly silver).
Eric sees the current “extend and pretend” intervention by world governments and central banks to prop of a fundamentally flawed banking system, particualrly the vast money printing efforts of the past few years, as a ruse that is losing it’s influence. Once enough people ask “Why have your money in a bank earning nothing? Why not have it in something that might at least maintain its purchasing power?”, the captial flows into the precious metals will dwarf current levels, sending bullion prices much higher.
Those interested in hearing Eric’s insights on:
- why we’re in a global secular bear market for most assets classes
- what the safest investment options are
- how much precious metals exposure investors should have
- the key factors that will drive PM prices much higher
- the mindboggling supply shortage and manipulation within the silver market
- why there may eventually be two prices for bullion: one for paper and (a much higher one) for physical & how high Eric thinks prices could go
Click above link for full interview.
From Gold Core;
Gold is marginally higher in most currencies today and has risen a further 0.55% against the euro to EUR1,056/oz. It is just 3% from the record nominal high in euros at €1,087/oz due to the risk of contagion in the Eurozone.
Gold in Euros – 1 Year (Daily)
The Moody’s downgrade of Portugal has led to a brutal sell off in Portuguese debt in morning trade which has seen Portuguese 10 year bond yields surge from 11.02% to 12.23%. Yields on Portuguese two-year notes soared 212 basis points to over 15.14 percent. There is increasing speculation that another downgrading of Ireland is imminent and Ireland’s 10 year yield has surged to over 12%.
Portugal received a $112 billion loan package only two months ago. It was due to sell 1 billion euros of treasury bills today but the Portuguese government debt agency IGCP said it sold 848 million euros of bills due in October.
Portugal is a reminder that Greece is just the tip of the iceberg and Portugal, Ireland, Spain, Italy, Belgium, Hungary in Europe and the U.S. itself face similar challenges, of greater and lesser degrees.
Cross Currency Rates
The risk of contagion in the Eurozone is increasing by the day which poses obvious risks to the euro currency and the global financial and monetary system.
Investors are increasingly concerned about the risk that contagion poses to assets previously considered risk free such as U.S. Treasuries and even German bunds. Germany may ultimately have to pay towards the massive and growing costs of the deepening eurozone debt crisis.
PORTUGAL GOVT BS 10YR NOTE
Gold’s safe haven status will soon again be realized and universally accepted and constant talk of a bubble will be seen as misguided.
This is assured as we live in an era where assets previously considered risk free, such as U.S. treasuries and German bunds, are increasingly being questioned.
If risk-free notes are no longer without risk, it will reverberate throughout all markets (bonds, equities, currencies, gold etc) globally, creating an increase in relative risk levels and a consequent adjustment of investment values.
Paper assets and fiat currencies look set to continue to fall against the finite and immutable currency that is gold. Especially as the risks of a global currency war and global competitive currency devaluations remains real.
Continual short term panaceas by misguided policy makers doing the bidding of powerful banks has delayed the day of reckoning.
However, there is no such thing as a free lunch and the failure to tackle the root cause of the problem, which is insolvency through too much debt, means that the day of reckoning will be of orders of magnitude greater had more rational policies been implemented.
Gold buying remains steady but surprisingly subdued given the scale of the crisis. There remains a fundamental failure to comprehend the scale of the crisis and a blind belief that the world will return to its pre crisis state soon. This fails to appreciate that the pre crisis state of the world, with massive and unprecedented levels of debt in the U.S., the U.K. and most western economies was anything but normal.
CFTC GOLD NET LONGS
Animal spirits are low and very cautious as seen in CFTC data showing that there has been a very significant liquidation by weak longs. The scale of recent liquidation is indicative of a market low and suggests we have made or are on the verge of reaching lows, basing and targeting new record nominal highs in the coming period of seasonal strength.
From our currency trader;
So Portgual got downgraded last night, eusd dumped from 1,4488 to 1,4410.. We all went to sleep to find out that Asia didnt seem to care, eurusd was at 1,4460 ish when we came in, market makers ineurope seemed to expect it to go even higher. As traders finished of their breakfast, spreads on PIIGS CDS were widening.. Sentiment changed, eurusd moved down as expected, and has been trading in the 1,4350/70 range since. Aud being held up rather well, feels like higher commodities supporting that. As expected with EM currencies, all weaker across the board.
Irrational Exuberance all over again, or is this time different? If the Chinese buy FB, they can at least ban it. Just like China bought US bonds, just to employ more Chinese, they might buy FB in order to control the information. Is it merely an investment, or part of a greater plan?
The Chinese government is looking into buying a stake in Facebook ahead of the social network’s widely expected initial public stock offering in 2012.
The possible investment, which was reported by the website Business Insider, would land the communist government a “huge chunk” of shares in the Palo Alto-based company.
Citing an unnamed source “at a fund that buys stock from former Facebook employees,” the website said China wants an investment “large enough ‘to matter.’”
A second unnamed source told the site that Citibank is looking to buy about $1.2 billion worth of Facebook shares for two different wealth funds — one belonging to the Chinese government and another belonging to group from the Middle East.
Officials at Citibank were unavailable on Tuesday to comment on the report.
Facebook recently sold 225,000 shares, worth about $6.6 million, to the GSV Capital Corp. investment fund and added Reed Hastings, Netflix’s chairman and CEO, to its board of directors.
Facebook, which is the world’s most popular social media service, is believed to be worth as much$100 billion. (LA Times)
Now when everybody is long this market that has shot up on no volume, driven by Algos and Daytraders only, it is time for a new sell off. Renewed Debt fears in Europe will spark a new sell off it seems. Portugal’s downgrade will soon spill over to Spain, and the European Debt Crisis will enter a Plateau.
Cds prices are widening;
GREECE 1850-1965 +20
SPAIN 285/290 +10
IRELAND 750/770 +30
PORTUGAL 825/855 +65
and we are getting some curious statements from the Spanish Prime Minister;
SPAIN’S ECONOMY MINISTER SAYS CENTRAL GOVERNMENT WILL LEND MONEY TO CITIES TO PAY PROVIDERS
and volumes are falling as only Algos trade. Time to short the Banks…..
While you were sleeping…. All you need to know by Virtual Trader.
Temasek, the Singapore state-owned investment company, is selling its shares in Bank of China and China Construction Bank, raising about $3.6bn, the FT says. The sales of the group’s stakes are thoughthttp://ftalphaville.ft.com/thecut/2011/07/06/613841/temasek-sells-3-6bn-in-chinese-bank-shares/
The Commodity Futures Trading Commission has for the first time revealed that almost 95 per cent of US crude oil futures volume is generated by day trading or betting on arcane price relationships, the FT reportshttp://ftalphaville.ft.com/thecut/2011/07/06/613751/cftc-reveals-day-traders-roll-in-oil-markets/
The eurozone’s big banks will meet again in Paris on Wednesday in an attempt to end the deadlock with European authorities over the terms of investors’ participation in the restructuring of Greek sovereign debthttp://ftalphaville.ft.com/thecut/2011/07/06/613741/banks-meet-to-sweeten-greek-terms/
Another wobble in the “peripheral” European economies has sent risk-takers fleeing, putting an exclamation point on the end of a Greek relief rally, the FT reports. Late on Tuesday, Moody’s, the US rating agency,http://ftalphaville.ft.com/thecut/2011/07/05/613726/rally-hobbled-as-eurozone-fears-nag/
Rupert Murdoch’s top executives are battling to contain the fallout from the phone-hacking scandal at the News of the World, the FT reports, amid fresh allegations that threaten past and present senior staff of its UK newspapers and could further embarrass David Cameron’s government. News Corp was standing by Rebekah Brooks http://ftalphaville.ft.com/thecut/2011/07/06/613781/murdoch-tabloid-phone-hacking-fallout-spreads/
The World Trade Organisation on Tuesday ruled against China’s practice of limiting its exports of raw materials, handing a victory to the US and the European Union in a closely watched trade disputehttp://ftalphaville.ft.com/thecut/2011/07/05/613701/wto-rules-against-china-exports/
South Korean companies are employing extreme measures in their efforts to keep workaholic employees out of the office during their compulsory annual two-week holiday, reports the FT. “If an employee does come in http://ftalphaville.ft.com/thecut/2011/07/05/613666/workaholics-forced-to-take-time-off/