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Portuguese Bonds In Melt Down – Euro Gold Rises To €1,056/oz - 3% From Record Nominal High On Contagion Risk

Tyler Durden's picture




 

From Gold Core

Portuguese Bonds in Melt Down – Euro Gold Rises to €1,056/oz - 3% From Record Nominal High on Contagion Risk

Gold is trading at $1,515.06/oz, €1,055.42/oz and £945.73/oz. 

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.

SILVER 
Silver is trading at $35.69/oz,€24.86/oz and £22.28/oz. 

PLATINUM GROUP METALS 
Platinum is trading at $1,733.65/oz, palladium at $770/oz and rhodium at $1,925/oz. 

NEWS
(Reuters Africa) 
Gold hovers near 1-½ week high on Portugal rating cut

(MarketWatch) 
Gold futures extend gains in electronic trading

(MarketWatch)  
Gold ends with a gain of more than $30 an ounce

(Wall Street Journal)
Comex Gold Reclaims $1,500, Silver Surges

(TheStreet) 
Gold Spikes On Greek Debt Uncertainty (GC in The Street)

(Financial Times)
Eurozone turmoil raises doubts over Bunds haven status

COMMENTARY
(Chris Martenson)
Eric Sprott - Paper Markets Are A Joke: Prepare for Bullion Prices to Go Supernova

(Time World) 
Europe's Elusive Gold Reserves: Are Greece, Portugal Sitting on Billions of Dollars?

(The Voice of Russia)
There is no Gold Rush in Russia

(King World News) 
Turk - Commencement of QE3 to Send the Dollar Into Oblivion

(Zero Hedge)
Paul Farrell's 7 Reasons Why America Needs A "Good Depression" Now...Or Face A Great Depression Later

(You Tube) 
U.S. Government Debt and You

 

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Wed, 07/06/2011 - 07:19 | 1428960 oogs66
oogs66's picture

portuguese and irish 10 year bonds almost 12% but all is good with U.S. stocks?

Wed, 07/06/2011 - 07:44 | 1429000 Max Hunter
Max Hunter's picture

I must have seen this movie 20 times in the past 14 months.. and still waiting for the ending.

Wed, 07/06/2011 - 08:21 | 1429100 Max Hunter
Max Hunter's picture

LMAO.. Salt water can't be good for leather..

Wed, 07/06/2011 - 08:50 | 1429161 Sudden Debt
Sudden Debt's picture

like watching season after season of Lost...

Wed, 07/06/2011 - 09:02 | 1429200 Saxxon
Saxxon's picture

+1 Max.

Wed, 07/06/2011 - 07:26 | 1428966 hugovanderbubble
hugovanderbubble's picture

Short Spain

Dont invest in Bankia and Saving banks We are in default

Spain is a fraud in terms of real estate valuation. ALl the books are cooked

 

BUY SPANISH 2yrs,and 5yrs CDS till your hand hurts

 

Tyler feel free to use this slide..

http://www.rankia.com/respuestas/857822/fotos/50290

 

Blackrock wont invest in Spanish Financial IPO´s

 

The end of Spain is coming

 

Short

Bbva

Santander

Banesto

Bankinter

Popular

Banco Pastor

Caja de Ahorros del Mediterraneo

Any Saving Bank Swapped into a bank is a farce = SELL

 

and DEXIA + kBC

 

Wed, 07/06/2011 - 07:43 | 1428971 Zero Govt
Zero Govt's picture

Trichet must be kicking himself he's retiring, afterall all this senile Eurocrat has been doing for the past 2 years as head of the ECB is promising to "stop contagion" ...what an excellent job Mr Froggy, your financial health strategy for Europe to stop contagion has not only not stopped the virus, or anywhere close to killing it, it's now spreading like fuking wildfire!!!

...and weren't your stress tests another work of financial genius.. so good the stress-passed banks all had stressed-out nervous breakdowns before the ink was even dry... so good we now need another because the first was beyond a sad incompetent joke!!  

...you can retire now you delusional useless old fart 

Wed, 07/06/2011 - 07:52 | 1429023 Herman Strandsc...
Herman Strandschnecke's picture

You gotta laugh!

Wed, 07/06/2011 - 08:21 | 1429043 Zero Govt
Zero Govt's picture

hilarious stuff ...and the Irish and Greeks draining their banks ATM's fast as they can see the joke in Trichets 'European financial stability' comedic stand-up routine now too 

Wed, 07/06/2011 - 08:33 | 1429118 THE DORK OF CORK
THE DORK OF CORK's picture

No Zero - for the most part the Continental & UK banks are draining our deposits - it works like this , well over 80% of Irish Goverment debt is owned externally.

To pay for the interest on this debt -  deposits are subtracted using tax as the mechanism.

As long as private credit is contracting deposits will decline.

They must do this to keep the value of the Euro high relative to Gold.

In essence they must destroy the periphery to peserve the currency.

Countries in Europe that do not own their own debt will be slaughtered - we need a Japanese scale post office on a relative basis to stop the bleeding but the core keeps biting - it must drink our blood to survive.

Wed, 07/06/2011 - 09:41 | 1429288 Zero Govt
Zero Govt's picture

Thanks for the explanation :)

Far more subtle than my understanding of how the system works which is simply too much debt to service, not enough income. And this debt is leveraged by creditor banks which makes a mountain (or nuclear mushroom cloud) out of a mole hill. And not only is too much debt too highly leveraged, but it's all inter-connected (ie. the systemic risk the Politicians/ECB/Regulators pay lip-service to avoid has arrived on their doorstep by the truckload whilst asleep... well er, when i say 'sleeping' i mean 'lunching' with same said bankers and politicians at Michelin star eateries around Europe for the past couple of decades!)

In a nutshell that brilliant phrase very fitting for all Govt practice: the lunatics have taken over the asylum

So now one financially inept ideological moron ('Eurocrat' for short) is retiring (Trichet) which new asylum seeker (Eurocrat) will take over to 'solve' the mistakes of his predecessor? Including a now insolvent ECB which Captain Trichet 'over-looked' to stress-test himself while at the helm of his sinking ship while navigating for his fleet of Euro bankers and politicians to safer waters (looks remarkably like 'iceburg alley' on the chart but who cares now the entire Euro fleet is drunk on Trichets orders to swallow every last drop of his Eurohopium brew)

 

Wed, 07/06/2011 - 09:54 | 1429406 THE DORK OF CORK
THE DORK OF CORK's picture

Well , I would have to disagree with some of your sentiments.

Sovereign debt is not really debt - it is goverment money ( the euro system is a very strange beast as Euro cash is uniquely not goverment money but still it shares many of the same characteristics of other CB dominions).

I don't think Trichet or the other Central bankers are inept - they are playing a beautiful game against very poor and/or corrupted opposition.

CBs cannot go bankrupt if states allow them to keep their Gold on CBs books.

They can inflate the money supply to reduce real debt service but they cannot go bankrupt at least in the convential sense.

The ECB is more careful in the inflation department simply because its currency is not directly tied to oil - the dollar can inflate to infinity without Gold as long as oil revenues flow back to New York.

The ECB has engineered a system whereby the periphery pay back overvalued debt with substantial interest when the most effecient mechanism for the general real economy would be dramatic inflation of the currency.

Its a transfer union alright - but this benefits the core rather then the periphery.

 

Wed, 07/06/2011 - 13:33 | 1430183 Zero Govt
Zero Govt's picture

"Sovereign debt is not really debt - it is goverment money"  ..i take this to mean Govt issues debt issued in Euros and repayable in Euros. The debt is in effect a promise to pay someone in a paper the Govt issues and can print at will (someone has to work for their money and create value, while the fat monopolist Govt just presses a printer)

"Euro cash is uniquely not goverment money.."  ..the ECB prints the cash, whereas national Govts/CB's receive the pallet of cash and are just distributors of it, dropping it from Hellis' yes?

"I don't think Trichet or the other Central bankers are inept - they are playing a beautiful game.."  ..Trichet says he'd stop contagion, contagion is on the rampage. Sorry i call that totally incompetent. He is 'solving' a problem of big debt by digging a bigger hole. Even if this was a 4-6 year old kindergarten this Trichet kid is still going in the corner with a pointy D hat on his head on 2 counts: incomptence and stupidity

"... playing a beautiful game against very poor and/or corrupted opposition.." ...predictible opposition too. Spend, spend, spend, debt. debt. debt. So much for financial planning at national level and Eurozone level. Anyone could see this problem mounting 5 years ago.

"CBs cannot go bankrupt if states allow them to keep their Gold on CBs books." ...are you saying here the Euro price of Gold held by the ECB will always reflect the debt load on the Eurozone?

"..they cannot go bankrupt at least in the convential sense.." So the €1 Trillion the ECB has issued/printed/electro-fabricated, if it implodes the ECB are not bankrupt?

"The ECB has engineered a system whereby the periphery pay back overvalued debt with substantial interest when the most effecient mechanism for the general real economy would be dramatic inflation of the currency." ...that's political think (nonsense). Namely the politicians, drowning in their own debt, print/trash the currency and wreak merry hell with all the citizens and commerce . Society (millions) pay the price for the corrupt and incompetent few (scum) to weasel out of their own incomptence. 

"...the most effecient mechanism ..inflation of the currency." The most efficient mechanism, as per Iceland, is for the many (society) to kick the few scumbags (politicos) out of office and with them goes their obnoxious debt. A short shap haircut of a few scumbags (and their creditors for taking the risk) rather than mortgaging millions in society with the combine harvester of inflation mowing down and creating havoc with the entire country for years to come. No contest, I'd take out the scumbags, politically expedient to do so My Dear Boy 

"Its a transfer union alright - but this benefits the core rather then the periphery.." Yes socialism, indeed Govt, is a transfer system of wealth from the many to the centrally pampered lazy elite few (parasites). The ECB (yet another wilful political monopoly institution) is no different and is behaving as you mention like an asset-stripping parsite. The asset stripping and ponzi will continue as long as the people allow it. So we watch and wait for the economy... when it tanks again big changes will be demanded and 'the House that Trichet built' will be toast. Who gets the ECB's Gold by the way, can i put my name down?


Fri, 07/08/2011 - 04:38 | 1435317 THE DORK OF CORK
THE DORK OF CORK's picture

@Zero

My postion is that private credit creation has already been malinvested - its just a question of who pays.

The leverage is taxable sov money relative to loaned money - they cannot tax much more to maintain the value of the sov money.

Euro cash is more directly tied to Gold rather then the taxable base of each countries sovergin debt.

I believe one of the strategic goals of the euro system is the slow destruction of states so the apparent failure in your and my eyes is success in their eyes.

A synthesis of bankers & princes created the nation state and now the bankers wish to move on and destroy it.

Much of what I say is a observation of reality as I see it rather then a moral argument - I have pretty much harped on and on about how so called risk deposits should vaporise and thus protect at least some value of the paper but that is unlikely to happen now.

Fri, 07/08/2011 - 04:40 | 1435318 THE DORK OF CORK
THE DORK OF CORK's picture

double post

Wed, 07/06/2011 - 07:27 | 1428972 milanitaly
milanitaly's picture

Our ten years bond 5.1% today. We are going to be the real Euro problem.

Wed, 07/06/2011 - 07:30 | 1428976 hugovanderbubble
hugovanderbubble's picture

Milan

Could you post any link to follow in real time or little delay your 10yrs Bond Quote?

 

like this for spanish...

http://www.bloomberg.com/apps/quote?ticker=GSPG10YR:IND

 

Appreciate.

 

Wed, 07/06/2011 - 07:38 | 1428988 hugovanderbubble
hugovanderbubble's picture

Thanks for the backup Quintus,

 

UBI banca wont pass the stress test next friday

Wed, 07/06/2011 - 09:15 | 1429248 Sudden Debt
Sudden Debt's picture

THAT'S SO TYPICALLY ITALIAN!!

"Look at me, we're more fucked up than you are blablabla..."

 

YOU'ALL  WILL JUST HAVE TO WAIT IN LINE BUDDY!!

ONE DEFAULT AT THE TIME!

WE'RE STILL AT NUMBER 1 AND I THINK YOUR TICKET SAYS 4!

Wed, 07/06/2011 - 07:34 | 1428982 jbc77
jbc77's picture

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."

Bingo. Not that I'm surprised but it really does seem odd how a few hundred points in the broad markets lulls everyone into thinking everything is just dandy. Obviously the average TV watching lemming can't comprehend the seriousness of the global financial siutation but even intelligent people for the most part really have no idea whats going on. I mean, we are living in some sort of financial Twilight Zone. The only question left is how long can the global extend and pretend continue before it blows sky high?

Wed, 07/06/2011 - 07:40 | 1428992 Ghordius
Ghordius's picture

Is this a rhetorical question? If not, what about a couple of years?

Wed, 07/06/2011 - 08:13 | 1429076 wandstrasse
wandstrasse's picture

until the whole planet is divided in slums and palaces. So my answer is: a couple of decades. There will be financial crashes time and again, but no system crash. Better stop dreaming of a system crash.

Wed, 07/06/2011 - 07:43 | 1428999 writingsonthewall
writingsonthewall's picture

I agree - and lets be clear about this - this isn't a new crisis, it's the same crisis as hit us in 2008. We just moved the problem along and now it's been found (by markets which must have had a labotomy in order to miss it)

 

No wonder stalwarts like PIMCO are making such risky bets - I think they realise it's "do or die" now.

Wed, 07/06/2011 - 07:50 | 1429020 wisefool
wisefool's picture

I've have been thinking this through for the last couple of years, and I would say the foundation of extend and pretend is that all of this debt is owed by somebody to somebody. Despite all the natural disasters and weather events, there is still plenty of food in the world.

Who is the creditor? it is ultimately the pensioners. And with the exception of the retired military types + law/tax enforcement, exactly what will happen to the above average human if the debt bubble blows up?

Nothing. Some lazy, incompetent, retired bureaucrat is not going to take your stuff. Are you afraid of some 50 year old retired teacher breaking into your house and "teaching" you to give them their duckets due?

As long as the food(spice) flows, the electricity stays on, and medical doctors accept fiat, there is no danger for the typical industrious person.

Again, I am not an expert, but unless there is a race of competent beings holding this debt, there really is no threat I see.*

*the Chinese are not going to war with the USA, they may buy up and colonize Europe and Africa, but the USA should be fine.

Wed, 07/06/2011 - 07:38 | 1428987 The Axe
The Axe's picture

All these bullet points and yet Gold has yet to make a new high vs the US dollar-adjusted for inflation.  The PIGS will be forced to sell their gold bullion by the German's..let us see to who and at what price...

Wed, 07/06/2011 - 07:45 | 1429006 GeneMarchbanks
GeneMarchbanks's picture

'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.'

Don't be ridiculous, of course you can have an economy based on real estate speculation.

Wed, 07/06/2011 - 07:46 | 1429007 belogical
belogical's picture

Well that explains the PM take down this am

Wed, 07/06/2011 - 07:47 | 1429008 Rikki-Tikki-Tavi
Rikki-Tikki-Tavi's picture

Funny how TD Waterhouse's real time platform crashed just as the market got under pressure...

Wed, 07/06/2011 - 07:49 | 1429014 Fazzie
Fazzie's picture

 But.....CNBCs "strategists", "pros", and infamous "most economists" are falling all over themselves assuring us that the crisis is contained because, you see, the other PIGS are so much different and pose no contagion threat. 

  Of course these are the same ones that claim the whole financial crisis was a confluence of unprecedented events that no one saw coming, and has said Greece is saved at least a dozen times right before they need another bailout, so as the country that put the P in Pigs goes under, I expect more of the same propaganda used to desperately try to diffuse the Greek situation to simply be repackaged into a Portugal version.

Wed, 07/06/2011 - 07:54 | 1429031 hourglass86
hourglass86's picture

If italy goes down then Eurozone is really fukd! GG JCT!

Wed, 07/06/2011 - 07:59 | 1429044 apberusdisvet
apberusdisvet's picture

Oh that Eric Sprott would get the same MSM recognition as the Obama sucker Buffet.  Nothing in FT, BI, or the WSJ about Sprott's very well researched articles or thoughts.  It's getting really bad when most of the members of the financial media are just propaganda machines captured by the criminal manipulators.

The world would end if John Williams, Eric Sprott or Bill Murphy ever appeared on CNBC.

Wed, 07/06/2011 - 08:07 | 1429063 overmedicatedun...
overmedicatedundersexed's picture

the general public and the financial press are co conspirators..don't tell us bad things and we will pretend all is well.

we sit here on ZH and see that the plane is plunging toward earth, while the public is watching the movie put up by the MSM eye's wide open.

Wed, 07/06/2011 - 08:48 | 1429155 Reptil
Reptil's picture

“Most ignorance is vincible ignorance. We don’t know because we don’t want to know.” Aldous Huxley

Some of my friends get irritated when I tell them what's bound to happen (if the present course is continued), some really REALLY don't care. They're outside of "the system" anyway. I know that's not a measure of general levels of understanding, but I do know one thing:
When the shit hits the fan for real, someone is holding the bag, and someone else gets the blame.

Wed, 07/06/2011 - 08:08 | 1429065 Hmm...
Hmm...'s picture

I will start by saying that I've read zerohedge for some time although I'm more of a nakedcapitalism person, and this is one of my first posts here,  so know I will be promptly ignored as a troll.

My disclosure: I have no debt at all.  I have a small amount of gold and silver.  My assets are: my house which I paid off, my 401k (all short term Treasuries), Traditional Roth (only holds CEF), and private (not public) pension plan as well as 6 figures of dreaded fiat in my local credit union.  I own no stocks outside of CEF in my 401k.  I am massively exposed to fiat.  I am also praying my house was not securitized since I paid off my house this year to bastard Wells Fargo and hope nobody else has a claim to it.

I am thinking about buying gold again, but am nervous, despite many bullish arguments here and on Turd's site. (although Turd has said to keep powder dry for now).

That said- although I agree with this:

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.

it does not necessarily lead to this:

Gold buying remains steady but surprisingly subdued given the scale of the crisis.

I will tell you why I am 'subdued' about buying right now

1) it is possible that the current crisis IS already "priced in".  Gold as example has moved from $700 to $1500+ in just a few short years.  Is it not possible that Gold has already priced in a failure of the Euro, and that price level is around $1600? 

2) I am very concerned that Gold/Silver will be taken down with the rest of world assets because the same leverage/liquidity that pumped up housing and stocks and other commodities also pumped up Gold/Silver.  who knows, without that excess liquidity maybe Gold would be $600???  as the liquidity dries up perhaps gold will go down EXACTLY as it did with the 2007-8 crash. 

3) the arguments that Gold holds its value is no longer true, at least not in a meaningful time frame.  Yes, 1 oz of Gold bought a nice Toga in Roman times, and now a nice suit today, but look at how much the value has wavered in the last 10 years.  It is CLEARLY meaningfully appreciating in value.  1 oz of gold today buys much much more than 1 oz did in 2001 as example.  Thus, although perhaps gold holds its value over centuries, this is clearly not true over a human lifetime.

Wed, 07/06/2011 - 08:20 | 1429098 DogSlime
DogSlime's picture

The main reason I hold physical has nothing to do with whether gold goes up or down.  If gold plummets, I suspect that everything else will have gone down too.

I hold physical because I don't want to go to the bank to get access to my savings, only to be told that there's a restriction on withdrawals and I can only access a few hundred... later to be informed by letter that due to financial difficulties, savings accounts have been frozen and that I must apply to the government who will hopefully guarantee my savings in the event of a crisis.

If the banks go under, depositors will get hammered.  I am sufficiently worried about this that I have transferred my savings into something that I can physically control.

This is just my personal reason - maybe I'm paranoid.

Wed, 07/06/2011 - 08:59 | 1429190 Hmm...
Hmm...'s picture

I agree with the rationale for owning some gold (store of value outside the banking system during turbulent times ).

I was just pointing out that there looks to be a nonsequitor in the above rationale for the worth of gold denominated in fiat.

I would be interested to see how many people would really be happy with owning Gold if it fell to $600/oz with the next financial crash.  (yes, I agree that clearly we will have another big crash just like in 1929-30 and then 1932 to 33) 

Wed, 07/06/2011 - 10:14 | 1429483 mayhem_korner
mayhem_korner's picture

I agree with Dog Slime.  If gold falls precipitously (say to $600), everything else would be disintegrated. 

Think of gold and silver in terms of real purchasing power (e.g., a silver oz currently buys about 10 gallons of gasoline).  Fiat is doomed to become worthless, so valuing PMs in fiat becomes uninformative.

Wed, 07/06/2011 - 10:46 | 1429615 Slim
Slim's picture

I would point out that gold has been more than cut in half before amid a completely prosperous world.  Take 1980 January gold and look forward for a decade or two, crushed purchasing power in gold when everything else outperformed.

 

Realize I'm not making the case that the past will repeat but one doesn't need to look too far back to see an absolute ass beating in this metal with the relative side being every known asset (fiat, hard, or security) dramatically outperforming it for decades at a time.

Wed, 07/06/2011 - 10:53 | 1429641 MachoMan
MachoMan's picture

I think you're on track...  but, personally, I'm not sure I would advocate a significant exposure to deposits or fiat...  It sounds like to me you've already got your deflationary preparations made (cash + completely deleveraged)...  but, if it were me, I'd have some more inflationary hedges... and/or less exposure to fiat...

I'm sure that you can find some distressed asset sales in your locale...  whether it's multifamily rental, farm, or even storage units (laugh)...  the point about these assets is that you're purchasing utility...  the utility remains whether we have inflation or deflation...  whether the currency is strong or weak...  this is the same for household goods (like hand tools) or real property...  some obviously depreciate quicker than others, but it should be incredibly easy to diversify out of a large cash position unless you are incredibly convinced that you'll be able to utilize those deposits for the purchase of a lifetime...

Wed, 07/06/2011 - 08:31 | 1429117 Robslob
Robslob's picture

Hmmm...

I have had many of the same thoughts as you and not many will answer your question seriously without some bold statement about fiat doomed for all times.

Buy what you can live with...I have a ratio of $25K in gold / silver to "hedge" every $75K in cash.

My point:

If I hand these coins over to my son and daughter someday and tell them their old man lived in crazy times and did crazy things to protect the family and those coins are worth significantly less than they are now I will be a very happy dad.

Rob

Wed, 07/06/2011 - 09:00 | 1429196 mayhem_korner
mayhem_korner's picture

@Hmm...

Good post - you will not be mistaken for a troll on those comments.

My view...PM prices have not fully baked in the crisis because the true crisis is diluted by the incessant sleight-of-hand by the politicos (who are exposed to bad economic news), the banksters (who are exposed to a run on the commodity, especially JPM), and the media (who are an extension of the other two).

So the "visible market" that values paper versions of assets is decoupled from the emergent physical market.  Barring a miraculous reversal of events, and a moon-shot of austerity, paper securities will go down as physical assets gain.

You are smart to be in a no-debt situation.  The question then becomes what balance of assets are you comfortable holding.  Fiat, PMs, stores of staple items, fuel, ammo, etc?  Bargain-basement real estate? 

Keep researching and testing out different ideas.

For me, I'm about 20% physical PMs and almost completely out of equities at this point, but for some holdings in energy stocks.  I have a very low interest rate mortgage, which if things fall apart, should go away for a few scant chips of PMs...

Best of luck.

Wed, 07/06/2011 - 10:11 | 1429449 Reptil
Reptil's picture

1. Hell no the crisis is not "priced in". The systemic crisis of 2008 was "papered over" and averted but at great cost. The idea here in europe was that the financial markets would restructure themselves. We had stress tests, and assurances it was all better now. Many believed this, and forgot about what happened only a short while ago. The restructuring did not happen. Instead there's more risk and more contagion. The problem is systemic. Instead of asking how much gold will cost in euros, you could see it like how many euros you can buy with that gold. This is a small but IMHO important shift in thinking.

2. Ah the deflationairy argument. Well, I think that the coming crash will not just be a recession. It will be the end of the system, it will just stop dead in it's tracks. The end of the game of chairs. No more trust, no more liquidity period. A restructuring of the whole financial system is needed. They knew that (banks) but most just continued, because of short term profit. How will the central banks react? Wellink said he needed an additional 1,5 trillion euro, just to stop the contagion this time. It doesn't stop there, since there is no plan put in place by those who profit now (senior bondholders) to change and let debtors default. Instead they are now solving debt with more debt (again). So... they'll print, and print, and print, because that's what they do. They stop when they are stopped, because no one will accept the paper anymore. Then you'll have hyperinflation. Since at this point long and short term cycles are ending and new ones beginning, I have more trust in something without counterparty risk, since I don't know who the counterparty is going to be in a year or so...

I have some cash. And will buy gold and silver IF they plunge. Which is more and more doubtful as Gold especially is widely recognised the world over as "safe haven" currency. Also I will not be the only one backing up the truck, in case there's a dip, there'll be a very quick run on PMs. 

3. Yes, that's what happens in fiat systems. They run their course. Please read up about why the price of gold fluctuated? There are several reasons, none have anything to do with fundamentals. In fact the singlemost imporant reason was to instill a trust in fiat money, and destroy the reputation of gold as money. They did an excellent job. Not many ordinairy folks hold gold. Not many ordinairy folks even know what fiat money means. In my family only my grandmother understood that (once again) for the 3rd time in her life, the system was due for a reset. Most ordinairy folks live their life, expecting the future to be EXACTLY THE SAME as the last decade of their own life. When I tell the people I work or hang out with that the euro itself is in danger because of a banking collapse, they just look at me funny and dismiss the whole idea with "but what are we going to pay with then? we'll always need money"

http://fofoa.blogspot.com/2011/04/deflation-or-hyperinflation.html

 

oh and lose that 401K :-S

Wed, 07/06/2011 - 10:53 | 1429636 Slim
Slim's picture

For what it's worth I thought your comments are solid and you are positioned to handle a variety of outcomes (deflation/inflation etc...).  You aren't optimized for any one but the cost of optimization for any single outcome tends to be very bad losses if your particular situation doesn't unfold as planned (and it rarely does).  I like your low debt position and paid off primary residence too.  If nothing else it makes you feel good.

 

Most people on this site are pretty solid and tend to appreciate independent thinking.  There are the fools that will junk anyone who doesn't support their personal opinion but I've come to realize they are just that, either fools or someone here to talk their book.

 

 

Wed, 07/06/2011 - 08:14 | 1429080 virgilcaine
virgilcaine's picture

This is EU contagion.. no?

Wed, 07/06/2011 - 08:19 | 1429094 oogs66
oogs66's picture

i think contagion, or dominos, imply that the problem in one country impacts the other.  These countries each have their own problems.  Fixing Greece (or whatever they are doing there) does absolutely nothing for the problems in Ireland and Portugal and Spain and Italy.  The banks are where the contagion is because they lent to them all and to each other and don't have enough capital to withstand these sovereign problems.  It will once again come down to bank bailouts.

Wed, 07/06/2011 - 08:32 | 1429120 williambanzai7
williambanzai7's picture

Wed, 07/06/2011 - 08:54 | 1429176 Sudden Debt
Sudden Debt's picture

1 oz of gold sells on average at 1200 euro over here and silver is crazy!

Especially the old silver currency coins. A 20 gram ecu sells over the silver 1oz price.

 

I recently heard a rumor that you can buy Albanian silver 1 oz coins at almost spot price. Anybody heard of that? Anybody has a adress for those?

Wed, 07/06/2011 - 16:07 | 1430775 Reptil
Reptil's picture

I tried, got some promises, but no luck sofar.

Wed, 07/06/2011 - 08:55 | 1429180 RobotTrader
RobotTrader's picture

As if the PIIGS countries problems really matter to U.S. consumer stocks, which have rocketed non-stop for 2 1/2 years.

Stocks like SODA up from $40 to $70 in two months while Greece was on fire.

Wed, 07/06/2011 - 09:03 | 1429204 The Axe
The Axe's picture

do i have a deal for you....Robot.....a have a paired trade long gold/short LULU  long current GLD 147--- long JAN 13 150 put LULU...you want the other side   for a beer... of course I got the trade on already!!

Wed, 07/06/2011 - 09:15 | 1429246 hz
hz's picture

Anyone else ever considered this RobotTrader loser to possibly be an ongoing joke user created by Tyler(s) to amuse themselves? 

Wed, 07/06/2011 - 10:18 | 1429511 Reptil
Reptil's picture

it's simple: short term trader vs. long term investor perspective.

he's right about the past, but what about the future?

:-)

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