Biggs is bullish on stocks, but nervous at the same time. Not really what we wanted to hear after this Santa run up. Biggs is according to himself, “nervous he is not long enough, but if the market goes down, he is nervous he is still 65% long”. Video below.
Guest Post by SK Options Trading.
In this article, we look to analyse the relationship between gold and the U.S. bond yield curve. The yield curve is an immensely useful economic indicator and hence can be used as one of the determinants of the gold price.
We have previously covered yield curve dynamics, for a refresher the following excerpt should aid in comprehension of this article.
“For those readers who may be unfamiliar with how the yield curve works, we will provide a brief explanation. Bonds of different maturities have different yields. By plotting these yields against their maturities we can build a yield curve. The yield curve becomes steeper if longer term interest rates increase relative to shorter term interest rates. The yield curve becomes flatter if longer term interest rates decrease relative to shorter term interest rates. One way to measure the steepness of the yield curve is to look at the difference between the yields at two different points on the curve. For example one may look at the difference between the yields on 2 year Treasuries compared to the yield on 5 year Treasuries. Such a comparison will often be referred to as “2s5s” and is measured in basis points (bps) by subtracting the shorter term yield from the longer term yield. So if one says “2s5s are trading at +225” this means that the yield on 5 year bonds is 2.25% higher than the yield on 2 year bonds. If 2s5s go from +225 to +275 then the yield curve has steepened between those two maturities. If 2s5s go from +225 to +175 then the yield curve has flattened between those two maturities.”
Intuitively, one would expect a flattening yield curve to be bullish for gold. Flatter yield curve = economic weakness = safe haven assets (gold) becoming more valuable, especially if such weakening in the economy is followed by monetary easing, or increased expectations of monetary easing. As with any hypothesis, this one is useless without being tested.
Belgium, with the new Prime Minister, has some solution to the European Debt mess. “We must not only focus on Austerity”. Words of wisdom, via Spiegel.
SPIEGEL: Angela Merkel wants to reform Europe by modelling it on Germany. Do you support her in that?
Di Rupo: Europe doesn’t have to model itself on Germany or any particular country but on the European model, taking into account all 27 member states. Germany plays an important role. It helps other countries and we must be grateful for that. But Germany must also cooperate with the other countries because its future also depends on the prosperity of the other countries.
SPIEGEL: Many in Europe accuse Paris and Berlin of not paying enough attention to the small and medium-sized EU countries. How do you view the “Merkozy” duo?
Di Rupo: Belgium is one of the 10 most important countries in the EU. And each one of these countries must defend its position with a twin goal. It must take account of its domestic political reality, but also of common European interests. It is true that Ms Merkel and Mr Sarkozy meet frequently. But decisions affect the 17 countries of the euro zone or the 27 of the EU, and every country must be listened to.
Full interview here.
Remember the 70s/80s? Middle East tensions, inflation, rising interest rates, high oil/gold price. But all is fine, this time is different. Must read Things that make you go hmmm report.
Despite the fact the LTRO has managed to avert Europe from turning into a full blown banking crisis, and Jim O’Neill’s bullish tones, we need to be looking forward in order outline potential dangers we could be facing in future. Geopolitics in the Persian Gulf and that US Debt could be the next thing to be focusing on. Greece defaulting is yesterday’s news.
Another must read “things that make you go hmm” report. Courtesy Grant Williams.
After his election in 2005, Ahmadinejad set about lifting the suspension on Iranian urani- um (try saying THAT five times quickly) enrich- ment and that brought him into direct conflict with the UN who adopted a whole bunch of resolutions, and George W. Bush who signed yet another Executive Order (13382 for those keeping score) freezing yet more Iranian as- sets.
Finally, on June 24, 2010, the US decided that the whole Executive Order thing was getting out of hand and so Barack Obama signed into law the Comprehensive Iran Sanctions, Ac- countability, and Divestment Act of 2010 (CIS- ADA) which, amongst other things, enhanced restrictions on the import from Iran of rugs, pistachio nuts and caviar.
But from the outset of sanctions against Iran in 1979, it was crude oil and gold that were af- fected the most. The chart, above, shows the oil price which, having begun to recover from the 1973 Arab embargo, spiked viciously as first the Iranian revolution that deposed the Shah then the stand-off with the US and finally the onset of the war with Iraq combined to send the price from a (then) already high $38 to a previously inconceivable $70.
Italian Prime Minister Mario Monti on Sunday sought to reassure his government was taking austerity plans forward, the WSJ reports, saying on state television that plans to spin off Eni’s regulated natural gas business were going ahead. http://ftalphaville.ft.com/thecut/2012/01/23/844471/monti-emphasises-progress-on-fiscal-measures/
Nearly half of Asia’s larger companies are planning to make a significant acquisition in Europe over the next year, drawn by the availability of cheap assets amid the eurozone crisis, according to a survey by FTI Consulting, http://ftalphaville.ft.com/thecut/2012/01/23/844331/larger-asian-companies-eye-european-acquisitions/
The European Central Bank has removed almost a third of the bank debt it added three weeks ago to the list of assets against which it would lend, the FT says, after discovering that many of the instruments may not meet its requirements. http://ftalphaville.ft.com/thecut/2012/01/23/844441/ecb-slashes-list-of-acceptable-assets/
Eurozone finance ministers will on Monday decide what terms they will accept on a Greek debt restructuring after talks going into the weekend failed to reach agreement, reports Reuters. The mood in Athens was tense on Sunday night, http://ftalphaville.ft.com/thecut/2012/01/23/844181/greek-bondholders-draw-line-in-the-sand-on-haircuts/
The extended Santa Rally has surprised many. With the light volume melt up, many are rather confused at these levels. Shorts sweating, longs enjoying, but want to exit fast, if this turns lower. Volatility has collapsed, and people now hate anything called theta. HFT still dominating the market.
These are all ingredients for some very interesting action going forward. All indices look rather toppish and some key indices are hitting major resistance levels.
Below are essential charts.