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A Euro Event is Bullish for USTs (Short-Term)
Recently, Marc Faber noted, understandably so, that Obama makes Bush look like a genius. This is a comparison of a liberal Democrat to a conservative Republican, as opposed as the mainstream US political system gets. The main issues were deficits and their unsustainable nature, irresponsible monetary policy—you get the picture. There is no disagreement on any of those points.
One needs to keep in mind that Markus is a very long-term guy (even though he has been making much better trading calls lately). Yes, the deficit situation is unsustainable—long-term—but, if the euro is in a free fall and money needs to find a safe haven, aren’t USTs the place to go, short term? All kinds of GIPSIs, STUPIDs ad PIIGS are under pressure in Europe and this is unlikely to stop on Monday.
The dollar rally will last longer than most expect. People were putting carry trades on last month that are already blowing up and the unwind is causing similar action in the euro as we saw in the late summer of 2008. As a refresher, late in the summer of 2008 the euro saw its highest volatility ever. And the yen rallied in 2008, a lot. If there is a similar carry unwind, buy the yen. This one loves the carry unwinds as it is a funding currency itself; it moves like a yo-yo.
All that money from Europe needs to find a place to go. It has yet to choose the gold market—which is small. Given that the fundamental picture is not good for US stocks—how did GS come up with a 1300 target on the S&P is a mystery to me, but Tyler posted it today—bonds are the only choice.
Don’t short the bonds, yet. You may have to buy them first. Don’t short the dollar, yet. Buy it first. And look for that three-digit handle in bullion, for if it does not decouple from that inverse dollar relationship, that’s where it’s going. Incidentally, silver, palladium, and platinum look much worse.
I don’t know what news Monday brings on Greece, but this is much bigger than this formerly glorious republic. The long term target of 1 for the euro is maintained here; the short term target of 1.34 might soon get hit. If you want to short something, short palladium.
They just upped the exchange margins, it’s rallied a lot and there is no shortage in a dicey economic situation—this is an industrial metal first, precious second. Get the picture?
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Thanks for the deeply conventional thinking. I can pretty much get this view already on TV. Yes, yes, I know, the global blow-up in sovereign debt will proceed in orderly fashion from "little" countries to the big countries with the US as last man standing. Check. Oh, and the Europeans are not going to buy gold. Got it.
what i don't get is why the "smallness" of the gold market is a strike against it. wouldn't that just exaggerate increased demand's effect on price?
I love your comment. When you say thanks for the deeply conventional thinking, what you're really saying is that you don't want to hear anything that conflicts with what you already believe. That's fine with me. Personally, I wish everyone thought like you do. It would make my job so much easier. That said, I'll take what I can get. Just wanted to thank you for stubbornly clinging to your ideology and refusing to accept any new information, regardless of how obvious it is.
I love your comment too. As I type, the USD has topped out, gold is on its way back to retest its high, and the debt of the US and the UK looks as shaky as ever.
The whole long dollar, short gold viewpoint is very popular with those who imagine themselves contrarian. But this is a shallow, easily won contrarianism that had no teeth and no real thesis.
This blog post was fated to wither in usefullness as soon as markets opened back up this week. To my point, and against the author's point, the Europeans will not buy US government bonds.
They will buy gold.
Correction, they are buying gold right now.
It is obvious that you are much more intelligent than the author of this article.
And, so, Mr. Master of the Obvious, your view is what?
Oh, you don't have one that you can articulate?
You must be a democrat ... criticize but have no suggestions.
How about you first get your own opinion and make it public before belittling others!
You know what they say about opinions, don't you ???
Finally, good advice: http://www.thestreet.com/story/10680897/1/don-dions-weekly-etf-blog-wrap.html?kval=dontmiss
As mentioned many times, the USD rally has only just started.
Choppy sideways action and chronic mixed signals continued this week, but the buying support I have previously mentioned returned on Friday 12 Feb.
It seems the DOW / SP500 / EURO / COPPER counter trend rally may start this coming week.
http://www.zerohedge.com/forum/market-outlook-0
In early 2007 I warned of an impending stockmarket crash. I confirmed an equity bottom by early April 2009. From mid 2009 onwards I warned of an impending USD rally. The uptrend since March 2009 has been a bear market rally contained within a much larger bear cycle that started in 2000.
Hmm. How I do wonder where those euros will go. I see comex dumping shorts like crazy. I see a another big currency running for gold. Next week should be interesting. Comex is going to get nuked. Seems like when dollar plunges gold rises, if we can associate the euro plunge with another rise in gold then when it becomes time for yen to do it's dive it'll be one or two too many rudimentary causations in a correlated orchestrated decent to fiat hell.
Comex accounting department spoof at the end of the month.
http://www.youtube.com/watch?v=w2yv8aT0UFc&feature=related
great read - thanks.
predictions based on your favored correlations and variables. not just the 'buy xxx' noise. most excellent.
i appreciate your thinking and the guts to put it out there. (tough crowd, ZH...)
mo' li' dat
If you think the Euro-Dollar cross is going to 1, then, if historical relationships hold up, commodity prices are going to crash. However, if there's a more general flight from currency, then some commodities may hold up. It's worth noting that in the first iteration of this debt implosion, the carry trade unwound violently, gold dipped briefly to $700, silver crashed to $9, palladium crashed to $200, and platinum to $800.
Interestingly, given the relative resilience of gold recently in the face of a declining Euro, I pulled up a chart of the price of gold in Euros. Just a whisker from an all time high. The Europeans are old school about gold. Germany, Italy and France are numbers 2,4 and 5, respectively, in central bank holdings of gold.
The IMF has 3000 tonnes, and people worry about their selling to raise cash to bail out the Greeces of the world. But that's just a short term glitch.
I've tried to spread my metals around between gold, silver, and platinum bullion coins. I'm thinking I'll focus on buying more gold on the next debt-crisis dip.
Good info. I've been trying to watch it more closely relative to the AUS because that's the least tainted of the fiats. I thnk they are keeping it pure to keep it as a relative anchor point to figure out how far to drop everything and when to move to the next currency to start printing. But the only really TRUE valuation that is holding is Taiwan and it's been steady at 1300 to 1350 an ounce in relative dollar terms. Though they are trying to get them to dump some they can't flood it enough to keep it from holding because they are devaluing currency in that country too rapidly and in too large of steps.
I just steadly keep buying up coins every month like clockwork, timing any clownshow, jerry-rigged market is a losing proposition.
Funny how the physical prices carry more and more of a premium over the past 12 months.
I don't see how they can let euro fall much more without setting off full panic. It's dropped a ton. Maybe they are dilluting and using the news for cover. When they intervene do you expect to see dollar plummet? Cause I think it will be cliff dive.
nicely done. more please. :^)
Great article.
I suspect this very scenario will play out and there will be a more appropriate opportunity to short bonds and go long on gold once the Euro story resolves itself.
Meanwhile, I can see euros being converted into dollars with haste.
We can only guess. The fuckers in charge know whats going where so all we can do is try to figure out how they wish to manipulate what they see and know.
i think you may give them too much credit. the banksters seize opportunity where they can find it but i don't think they wanted their stock prices to do what they did from 2007 to here.
"Don’t short the bonds, yet. You may have to buy them first. Don’t short the dollar, yet. Buy it first. And look for that three-digit handle in bullion, for if it does not decouple from that inverse dollar relationship, that’s where it’s going. Incidentally, silver, palladium, and platinum look much worse."
If the human race is SO stupid to RUN to the safe haven of Toilet paper, and the prices drop to these levels, there won't be an ounce of any of it for sale............talk about PANDOMONIUM!!.
Rent a U-Haul if this happens.............hock Grandma, sell/take a loan out on the house, max the credit cards, remove all IRA's, CD's, and 401k's not already cashed out,.............
Sounds great, but, surely BY now, the people left in the world that can read, will not be so STUPID to run from a bonfire, and jump into Hell.
Trading the markets, I have learned not to underestimate the stupidity of the human race.
Paper and physical Gold are two very different animals. That their prices have remained close enough ever since paper Gold markets were introduced is just a testament to human gullibility and "you can fool all of the people some of the time". What will be sold-off in the panic is paper Gold, not physical. If paper Gold is sold-off use the opportunity to buy the physical. I already maxed out the cards when it WAS three digits. If it falls again, I will sell EVERYTHING, stop trading and JUST BUY GOLD, although if the paper price falls too far physical bullion will most likely not be available - not at the paper price.
Two countervailing theories on the Dollar:
1. A currency run by Nazi gimps who can't match monkeys for math
2. World reserve currency - something of a safe harbour in a sea of Ponzis'
-Last week, the USD went nowhere; while Technicals are still relevant, I think we're several steps closer to 'fundamental geo-politics' on calling the market. With military solutions certainly less feasible, and the up-front statements on monetization of the Debt- placing a dollar value trading call on UST has to be just plain risky. Not that you aren't right, it's just a highly fluid situation which depends on information. For example, if China bolsters military presence on foreign soil -and the US doesn't react to counter/safeguard interests... if that wasn't enough, China's trump card is 'creditor nation' status.. it is just likely to play it at some point -and this could all be boiling down to a new reserve currency.
As for the Yen correlation- that works, until maybe it doesn't..then what! my thinking on this is: The US doesn't share super-power status which means China 'must' bring the USD down. There shouldn't be much of question as to which is going to emerge as the greater power. Yen 'is' the funding currency, but at some point it will begin to move to the tune of Chinese requirements. In terms of a straight USD/Yuan, China has just been giving Washington rope. Recently there have been 'flashing lights'.. at the least -this has to be a signal to bystanders that China no longer stands as a creditor to the US. Which leaves us with a temporary vacuum. But we don't know whether, even in general terms -this next phase will be 'Destructive of US capital markets', or 'Constructive for Global Capital markets'; nor which tools are available to be used. (At least I don't know)
I would be interested to hear from Grand Supercycle as to whether there may be a discrepency between predictions for Gold at the current moment and spot. This may give some clue as to the 'extension' that the US system is running.
Dammit, I'm sitting in cash -because it's choppy and Euro weakness is/should be countered by deep financial flows.
PD holding above 50day MA, nothing ugly yet. Best trade here is short industrials vs pm. AU vs CU first one that come in mind. But would not be long any metals outright here...
Hi Andy. How do you feel about a bet against PAL? Seems to have topped out to me and gasping for breath. Thank you.
Thank you, Andy.
if you want something REALY ugly... this is one...
http://stockcharts.com/c-sc/sc?s=$COPPER&p=D&b=5&g=0&i=t58260159622&r=5151
It is indeed comical how the safe harbor status of the US $ is touted ad nauseum. Kindly look at the stated positions of the two major adversaries of the US i.e Russia and China.
To the extent possible Chinese will not try to rush to sell their US $ assets that they end up having to contend with a plummeting $ because of their actions. They would like a slow and gradual exit. However the question remains where will the funds go to once they exit US $ positions. The euro seems like a likely home. Will they indeed do that in the face of a collapsing euro? The euro is not only a unit of currency but the monetary face of the experiment called EC. The politicians over there will be loath to let it fail. They need it to face up to the americans , the russians and the chinese not to mention the other two BRICS.
So I will submit that sooner than later the europeans will initiate measures to defend the euro and all this dollar bullishness may end up looking very ill advised indeed.
"US Debt Is A Safe Haven Just Like Pearl Harbor Was A Safe Haven In 1941"
http://www.businessinsider.com/us-debt-is-a-safe-haven-just-like-pearl-h...
I dont like the site, but the title was funny...
Greeting from good old europe
Tera€
Hard not to like the Aussie. But, in the last iteration of the debt-implosion it fell from 0.98 to the US Dollar to 0.63. Yikes. And in the recovery from the 2009 lows it's rallied back (like a stock) to about 0.90 to the US Dollar.
It's tricky the way these fiat currencies collapse relative to each other. Most of them are crap, so you try to stay in the one that's not currently collapsing. It's the Euros turn for pain. And make no mistake, the Europeans have been miserable with a Euro this high, hurting exports. They'd love to see a Euro-Dollar cross back to 1, where it all started, lol.
I don't think they're as keen about having the major continental banks go belly up from bad debt, however. And if there's a run on the Euro, and the European banks, the hedgies long the "steepening" trade and short USTs will be massacred, due to a massive flight to quality (liquidity). Then the hedgies getting blown out of their bad credit market trades will have to liquidate their other positions, driving down the price of commodities and stocks, like we saw in credit-crisis pt 1.
So that would present another buying oportunity for the adroit traders/investors.
this page is like reading a horror novel, that's nonfiction.
TLT chart boring, directionless.
Now that FXE is down on well-publicized news, is now the time to get bearishly positioned? You can go long USD, short euro and then California blows up and Greece settles down. What have you then? A losing trade, I suspect.
TLT chart mostly boring. It is bruited about that the Treasury is going to increase its duration a good deal. How this can lead a trader to want to own the long end at this time is beyond me.
The Technical Take has some good recent articles on gold traders' sentiment. It is along the lines of above. It is bearish now. Even the Technical Take blogger is doing what Andy did: looking for gold to reach toward or to the low part of an accelerating uptrend line. If we were at a blowoff top in gold, then John Paulson would be besieged with "investors" for his new gold fund. Instead there's almost no interest.
When the NAZ went parabolic in the '90s, you wanted to buy the dips without getting cute about it.
So it seems to me that it you want income as a buy and hold investor, Treasuries are as good as the US offers, and if you believe that gold has a good chance to preserve purchasing power given the irresponsibility of the PTB, and if you are not long enough gold to make you sleep well at night, you should NOT wait for triple digits in gold.
For now I do not see assets in Euroland being sold in any big way. German DAX and French CAC look a bit weaker then INDU and SPX since October but German 10-year-bonds yield 3.19% and US Ts yield 3.69%.
The whole story of Southern Europe looks bad; but does California look any better?
If it is equally bad almost everywhere the Euro weakness looks like somebody is playing a game here.
Numbers are not good, who wants to buy German stuff without financing?
The ECB has a mandate for price stability, not for employment.
Moreover, the EU deficit limit should reduce stimulus from the national governments.
For now Ireland (Eurozone) and Latvia (outside Eurozone) get a full dose of austerity measures, conservative monetary policy is putting it mildly.
Thinking again of the market action my explanation is that right now nobody is buying or supporting the Euro at the current level. German exporters like the lower Euro and commodities are not driving inflation a lot.
on 60 mins. @ Davos, the audiA8 “release banker tension” doing slalom turns in the snow. showing off german engineerings' finest.
Greece = big crash this week: http://www.thestreet.com/story/10680833/1/europe-remains-a-concern-in-coming-week.html?kval=dontmiss
Goldman Sachs was helping downplay Greece's debt level...
http://www.nytimes.com/2010/02/14/business/global/14debt.html?em
Well done Andy. I agree with your conclusions, as usual.
Good article Andy. One issue that I'm sure
nobody else will point out is that W is NOT
a conservative republican. While dems may
define him that way for their own purposes
true blue republicans do not consider him to
be one. So the distance between them is
not truely great. The evidence for this is
that Obama has continued W's "failed policies"
all the while putting them down.
I watch silver coins on ebay. it's a good measure of what the small guy is thinking. Here's what I've noticed. Silver coins were selling at about 120% of spot six months ago. Now they're selling for 140%-160% of spot. He could buy the same coins at APMEX for 120% but he's paying 150%? The small investor is acting stupid when it comes to metals. We're close to a top...no doubt about it.
E-bay? Anyone who would purchase their PMs on E-bay has more money than brains. Great place for auto parts, and certain tools. TERRIBLE place for PMs.
Money is sloshing between currencies, but each time there will be leakage into gold. More and more fun park customers will ask to get off the ride. That's why the absolute decline in gold is not as important as the relative decline against USD.
http://stockcharts.com/h-sc/ui?s=GLD:UDN&p=D&yr=1&mn=0&dy=0&id=p14351764860
And look at the yen/euro. Do we have liftoff?
http://stockcharts.com/h-sc/ui?s=FXY:FXE&p=D&yr=3&mn=0&dy=0&id=p14351764860
UUP would, UDN is the inverse.
Thanks once again for a timely article Andy...I always enjoy your viewpoint.
For those that believe the shit is hitting the fan and that we are in a secular bear, the treasury postulation is correct as big money has to hide somewhere and where else is there to go but US treasuries? I agree that on a long term basis treasuries will get hammered, but shorting 'em now seems like a death play.
Notwithstanding the Eurozone mess, let's keep in mind that from a US centric point of view, the Fed's actions on rates is all about the housing mess and the Fed must do whatever it can to keep treasury yields low as they have cast their policy die (along with, I suspect, deals made with obama and various senators for ben's reappointment) on propping and attempting to reinflate the US housing market.
I think the Fed is the direct bidder of late on treasuries and I just don't see them stopping. Irregardless of any talk of an official QE vers. 2.0, Ben is still easing up to the bar at the treasury auction gig.
watcha got for the vix Andrew? still bullish on the fazzie? i think bkx is breaking down.....
Thanks Andy!
"Notwithstanding the Eurozone mess"
While I agree the Euro zone is in a mess, if we compared it to the US states MESS, it's small potato's............
We have close to 30 states near Chap 9's, and the GDP's, to Debt ratios make the Eurozones looks like a SS picnic...........
While it's obvious I am no finacial wiz, why in hades name would they Euro countries RUN to anything for saftey, in USA monetary instruments?.
Pm's are the only thing of any (tangible) value left on the field................period.
Clue me in............I do not see it.
Andy...take a look at this from Kenny's blog...comparison of 7-10 yr T bond to xlf. interesting
http://kennystechnicalanalysisblog.blogspot.com/
thanks andy, i appreciate your thoughts. kenny has a nice blend of elliot and classical ta and is one of my must see stops on a daily basis.
while i'm at it, do you have any thoughts on mean reversion? in this case, a drawback to ~ 50% of the rally off the march lows, ergo, low 900s.
i've studied the 30s charts.....agree on taking out 666 but see that as a late 2010, 2011 event, barring a major geopolitical event.
[A dF]> I don’t know what news Monday brings on Greece...
Monday brings Karneval in Germany, Tuesday brings Mardi Gras [literally Tuesday Fat] in French speaking arrondissements. This suggests that the Catholic hangover (laden with liquidity-induced pain!! :-)) begins in earnest on Mecredi / Mittwoch / Wednesday, rue the Jour / Tag /Day...
Yiamas / Sante / Gesundheit / Cheers! AbbeBrel
The only problem I have ....is siding with the masses....
The masses are always wrong....
Obama makes Bush look like a genius....
I thought that THAT would not be possible....
BUT IT IS....
We got Andy to talk alot. It was a good couple of days.
good idea Andy, I will exit my long term bond funds as yields will get unattractive not that are very nice at 3.5 + for 10 / 30 here...
folks, check this out: http://www.thestreet.com/story/10680833/1/europe-remains-a-concern-in-coming-week.html?kval=dontmiss
Palladium margins were increased due to delivery issues - I would consider that before going short...
How about some out of the money index puts dated Nov or so?....Just thinking out loud.
As Taleb points out the whole system is now much more inter-connected than before that a grey or black swan seems likely in the coming months, be it a Greek or other trigger. The surest bet, I believe, is gold and-or silver. They could take a hit, too, but they will be what remains standing and, if fofoa and Sinclaire are right, which I think they are, their real value, which is far greater than the fiat numbers, will be recognized.A three digit number for gold would be proof of a caring Diety´s existence and I and many including our Asian brethern would be rejoicing.
Common, gold is just another trade! Nothing else, nothing more... On RV basis it will do better then other trades, but as outright play, its as crap as anything else. Be long gold, but sell something against it and you be OK: AU vs CU, AU vs NI, AU vs FE, AU vs SPX it will shine...
Okay then, don't short NG, short PAL, which can be squeezed with a couple of unemployment checks. NG on the other hand, is riding on top of a very cold winter with huge storage numbers and industrial and utility demand that is imaginary in the minds of Leo's investing pals.