Archive - Oct 7, 2011 - Story

The continuation of ultra loose monetary policies and new rounds of QE is supportive of gold in all currencies. Negative real interest rates mean that there continues to be no ‘opportunity cost’ to own gold which is a key driver of gold’s bull market. In time, quantitative easing will be seen for what it is - bailing out banks and financial institutions and a form of currency debasement. Developments in gold and wider markets this week are bullish. There are continuing signs of very significant demand in the Middle East, India, Vietnam and China. There are reputable reports of shortages of gold bars in Hong Kong, Singapore and Vietnam, of shortages of silver bars in India and delays in delivery and rationing of silver coins internationally. The CME decision to increase the amount of gold accepted as collateral and the LCH. Clearnet decision to allow gold bullion to be used as collateral shows the financial system is increasingly seeing gold as an asset on a par with cash and bonds.

After three days of tightening across the board borne out of nothing but hope about hope, it appears that the ghost of insolvent European governments is back, as reality starts coming back.

Today's NFP number will be, as usual, critical. On one hand, Obama needs an ugly number to get the bipartisan support urgently needed to pass his jobs bill. On the same hand, Bernanke needs the market to drop, and the short covering rally to end and the market to plunge in order to have a carte blanche backstop for QE3 when the GDP prints negative. On the other, a sub zero NFP will send stocks into a tailspin, and facilitate the drop into a full out recession, with the "wealth effect" disappearing even for the "1%." To make some sense out of what to expect in under one hour, here is Goldman's Andrew Tilton with a full, and surprisingly downbeat, preview of what to expect. "The September employment report should look slightly better than its predecessor, at least on the surface. The underlying trend in hiring still appears very weak, perhaps even weaker than August. But recent US growth data have been mildly encouraging, layoffs have stayed fairly low and the headline payroll number will be boosted by the return of 45,000 striking communications workers. We expect a gain of 50,000 nonfarm payroll jobs, with the unemployment rate holding steady for a third straight month at 9.1%."

• It’s Too Hard to Know Who Is Too Big to Fail (Bloomberg)
• China Currency Bill Passes US Senate Test (FT)
• China Labor Costs Push Jobs Back to US (FT)... one week behind Zero Hedge
• Credit Swaps on Chinese Debt Surge on Slowdown Fears (FT)... three weeks behind Zero Hedge
• America’s Six Key Lessons for a ‘Euro Tarp’ (FT)
• EU Pressured for Bank Rescue Plan Before G-20 (Bloomberg)
• Whitehall Fears New Bail-out for RBS (FT)
• Bank of Japan Keeps Policy on Hold (Reuters)
• Euro-Indebted Emerging Currencies Have Further to Fall on Growth (Bloomberg)
• Moody’s Lowers Its Senior Debt, Deposit Ratings for Nine Portugal Banks (Bloomberg)

This morning Moody's resume its Freudian transference experiment borne out of its inability to downgrade the US by continuing to downgrade insolvent European banks, by downgrading a whole bunch of Portuguese and UK as of several hours ago. Per Bloomberg: "Nine Portuguese banks had their debt ratings cut by Moody’s Investors Service by one or two levels, which cited concern about funding, bad loans and holdings of government debt. Moody’s cut the “standalone” debt ratings of three banks, Banco Espirito Santo SA, Banco Comercial Portugues SA and Banco BPI SA, by two levels, the ratings company said in a statement today." Elsewhere, per BBC, "Moody's has downgraded the credit rating of 12 UK financial firms including Lloyds TSB, RBS, Nationwide and Santander UK. Moody's said it now believed the UK government was less likely to support some firms if they got into trouble. However, the firm emphasised that the downgrades did not "reflect a deterioration in the financial strength of the banking system". Moody's also downgraded nine Portuguese banks, blaming financial weakness. Shares in both RBS and Lloyds were down by about 3.5% in morning trading." Since all of this is certainly pried in (ask Dexia), we expect the weak hands shorting throng to continue its scramble to cover, until the next European bank fails, and the next, and so on until it s the longs turn to realize that not only has nothing improved but things are progressively getting worse.