Archive - Aug 2011

The first of many gold price upgrades is here, as Goldman's David Greely finally catches on to what has been all too obvious to anyone with a frontal lobe: "Gold prices hit a new record high last week, closing at $1,663/toz on August 3. Despite this rally, the rise in gold prices has continued to lag the plunge in US real interest rates, with 10-year TIPS yields trading below 30 bp. With our US economics team lowering their outlook for US economic growth, implying US real rates will remain lower for longer, and with sovereign debt issues in both the United States and Europe intensifying, we are raising our gold price forecasts to $1,645/toz, $1,730/toz, and $1,860/toz on a 3, 6, and 12-month horizon, respectively." Next up: everyone else.

Highlights from the just released G-7 statement:

• G7 Says Will Take Every Action to Stabilize Financial Markets
• G7 says it will commit to secure liquidity in market
• G7 will cooperate closely on currency market actions
• G7 says it will be in close contact next few weeks
• G7 says disorderly moves in markets hurt economy
• G7 says currency rates should be decided by markets

But the winning bullet point of the year is...

Citi is currently holding an impromptu conference call discussing the US downgrade and its implications. Attached please find the notes from the call.

Washington probably had it coming by handing S&P one necessary ammunition--the Political Soap of the American debt ceiling debate, but on the other hand, I would not give that much credence to S&P’s claim that “it's our duty to make that call" either.

This isn’t the time to hope.  This is the time to take some action to protect yourself and your money.

Just like in 2008 we’re going to see a full-scale market Crash. Only this time it will also involve countries defaulting on their debt, bank holidays, civil unrest, and more. In simple terms, it’s going to be 2008 on steroids.

It is still not too late to submit one's thoughts of what the US downgrade means for various asset classes and for the economy, and world, in general. Here is one of the few worth reading, courtesy of QBAMCO's Paul Brodsky and Lee Quaintance. Their conclusion: "the downgrade is effectively a currency downgrade, which seems very reasonable, overdue and, in real terms, insufficient. We would argue that in real terms, US Treasury obligations are non investment-grade. We think Treasury obligations today and always will be money-good, but principal and interest will be repaid with bad money."

Geithner was on NBC and when discussing the massively overdue S&P downgrade of US debt, shared the following pearl of wisdom: "S&P decision to cut U.S. credit rating shows stunning lack of knowledge about basic U.S. fiscal budget math." Listen to Tim: when it comes to stunning lacks of knowledge about things, Tim is the absolute expert, although in his case it is mostly the US tax code. He added that S&P made a "terrible judgment" and reached the wrong conclusion. He is right. The cut should have been at least several more notches. But there is time... Lastly, and most expectedly, he added that the S&P decision changed nothing on the safety of Treasuries and that China remains a strong investor in the US. Perhaps. We shall see after the TIC statement from October is released, which will detail August transactions. Alas, by then the world will have other issues to deal with.

...Not too happy to start based on the early bid/ask.

The first prints are in: ES down 31, DJIA down 274, and gold, natural, welcomes our new centrally planned overlords by hitting an all time high of $1692.

A few more minutes until ES futures open fully. In the meantime enjoy the indicative bid/offer.

Statement two out of three. Next up: the G7, which will also reiterrate its forecfullanguage that nobody needs to sell anything, anywhere.

You won't find this kind of hard hitting investigative roasting anywhere else folks...

For an early look at the risk aversion gripping the market look no further than the USDCHF and the USDJPY, the first of which just took out 0.75, and the second now almost at BOJ intervention levels. Ironically, since the math Ph.D.s have still not recalibrated their models, it is very likely that the collapse in the dollar will lead to an explosion in ES courtesy of the inverse correlation, which will once and for all confirm that global capital markets and now nothing but a robotic circus.

Below is the full text of the joint French-German statement attempting to prevent another European market collapse. Next up are comparable statements from the ECB and from theG7. We expect many more before the night is out.