• Sprott Money
    02/28/2015 - 07:05
      In this exclusive interview, Hugo Salinas Price share his views on precious metals, provides some historical background on gold and silver money, the manipulation of the precious...

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Goldman Sees “Currency of Last Resort” Up 15% At $1,840/oz In 6 Months

Goldman maintains “constructive” 6-month forecast, says case for higher prices remains in place. Goldman stands by its forecast for a rally in gold this year, saying that the precious metal will advance to $1,840/oz over six months as the U.S. central bank embarks on a third round of stimulus in June. The precious metal remains the “currency of last resort,” according to analysts led by Jeffrey Currie in a report released yesterday. Goldman’s gold forecast implies a 15% return in 6 months. “In early 2009, we suggested that gold had become the currency of last resort, overtaking the U.S. dollar’s status due the rising risk of sovereign default and debasement concerns,” Currie wrote in the report. Even as the U.S. currency advanced and gold fell on the European crisis in recent months, “it is too early for the dollar to reclaim this status,” they wrote. “The case for higher gold prices remains in place,” the analysts wrote. “U.S. economic and employment data has now disappointed for several weeks, European election results point to further stress in the euro area, while anecdotal data suggests that physical gold demand remains resilient.”

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Overnight Sentiment: Oversold Bounce Overdue

There was no good news overnight: CSCO (a rather prominent DJIA member) imploded on global demand weakness, China posted a larger than expected trade surplus which however was due to a greater than expected drop in imports, European industrial production was slightly better in Italy but offset by worse than expected news out of France (as for Greece - forget it), while all the attention continues to be focus on how the Greek endgame plays out, and now Spain too. Still, futures are on the cusp of greenness simply because following 6 days of declines stocks are oversold, and will desperately try to rally into any good news: such as initial claims later today, which will once again be spun as "declining" following a bigger upward revision to last week's number, making this week's appear to drop... at least until next week. As usual be on the watch for any erroneous headlines based on spurious rumors out of Greek developments: these tend to more the EURUSD, and thus ES, quite violently.

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Greece's Jobless Soar By 42% As Unemployment Rises To Record, Industrial Collapse Accelerates

As noted earlier this week, while the theater of Greek elections serves as a convenient distraction from the epic depression the country of 10 million is undergoing, the reality is that very soon it won't matter at all who is left to govern this ruined country. Because if previously we demonstrated the collapse in two primary drivers of government tax revenue, namely tourism and commerce, today we show the logical follow through to economic flatlining: jobs and industries. Sadly, both are getting trounced. As Reuters reports, "Greece's jobless rate hit a new record in February, underscoring the pain austerity policies required by the EU and IMF have inflicted on the debt-laden country which is struggling to form a government. More than one in five Greeks and one in two youths are out of a job, statistics service ELSTAT data showed on Thursday. The unemployment rate hit 21.7 percent from a revised 21.3 percent in January. In the 15-24 age group, joblessness stood at a record 54 percent." It also appears that Greece has been getting ideas from the BLS: an 11 million population, and a pool of employed at a record low 3.87 million! "Nearly 1.1 million people were without a job, 42 percent more than in the same month last year, the data showed. The number of those in work declined by 8 percent over the same period to a record low 3.87 million." In other words, less than 4 million people are working to pay off the country's bailout package and debt which at last check was about 200% of GDP? At least of all indicators, the GDP is collapsing the fastest. Very soon Greece will be treated to a merciful #Div/0 when attempting to calculate its debt to GDP ratio. We can't wait to see the IMF's face then.

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"Europe Has Started The Endgame" And Biderman Says "The US Is Next"

Charles Biderman (CEO of TrimTabs) is not shocked that "Europeans who have been getting something for nothing, want to continue getting something for nothing" as they chant that Austerity is evil. Charles provides context for the revolt that the Europeans find themselves fulfilling as he looks back at how they/we got here. Briefly covering the key aspects of the last 25 years, of why and how various parabolic growths (be it stocks, real estate, the internet, or debt) have led us to believe we "deserve something for nothing"; he vehemently argues that the European mess will not resolve itself until the fundamental belief that we all deserve to be taken care of from cradle-to-grave dissolves. In one of his best rants, the BLS-belittler explains how Europe has started the endgame and why the end of this year could well see the US move front-and-center in the crisis.  Harsh but fair, in a little under 4 minutes, summarizes all that is wrong with societal values and suggests catalysts for next steps - dismal next steps.

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John Taylor On Why "The Ground Is Not Solid Beneath Our Feet"

Investors should be questioning their positive assumptions after the events of the past two weeks. Things have changed a great deal and rumors abound on how the authorities plan to support the market now. At the end of last month, only ten calendar days ago, the perky US equity market, the placid foreign exchange scene, calm credit spreads and rock-bottom volatility implied to us and anyone paying even cursory attention that the world was happy with the way things were turning out in 2012, no matter what the Mayan calendar might be saying. But now, after the Socialist victory in France, the Greek electoral disintegration, the poor US employment numbers and the disastrous European PMI readings the market is very uncertain with the EUR/USD below 1.30, Spanish 10-year Bonds back over 6.00% and equity markets down sharply around the world. Our cyclical analysis finds this weakness very appropriate as we should be in a decline. What makes the ground so uncertain beneath our feet is the reality of our current position: interest rates are at zero, fiscal budgets are stretched to the maximum, total national financial liabilities are at a breaking point and national monetary bases are a multiple of the highest they have ever been. Quite simply, there are no good borrowers. No one wants to loan anyone any money.

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Europe's Most Parabolic Chart Goes Parabolic-er

Two weeks ago, we showed that when it comes to parabolic charts, Europe sure has a variety to choose from. Yet none are quite as parabolic as the chart enabling it all: the Bundesbank's TARGET2 claims toward the rest of the Eurosystem, or as we have repeatedly explained (and as Jens Wiedmann confirmed), the sunk cost that Germany will have to foot once the Euro experiment ends, and the EMU falls apart.. which judging by recent developments in Greece, and now Spain, could be as soon as in a few weeks. The number as of April 30? €644,182,010,456.05, which is exactly 25% of German GDP, and an increase of €28.6 billion in April and €181 billion in 2012 alone! Putting this number in perspective, imagine that the Fed had "assets" totalling $3.85 trillion that everyone knew are totally worthless, and meant that it would have to print a like amount in fresh money as replacement "capital" when D-Day came. This "money" represents a receivable that the Bundesbank will never, repeat never, get back, once Greece exits the Eurozone, and sets a precedent for all the other insolvent European countries, leading to the end of the European monetary experiment. It also means that the asset base backing the liability side of the Bundesbank will soon get obliterated. So the real question is: do German taxpayers feel like sinking costs which will never be repaid, and which serve merely to preserve the myth of viable German export markets, thereby keeping the illusion that the German intra-Eurozone export industry is alive and well, while in the process obliterating the balance sheet of their far more prudent central bank? Or will the German population say "genug" and force the Bundesbank to stop funding the current account deficit ways that it has been enabling for years? The choice is theirs. Just don't come crying to the Fed when this number is 100% of GDP and everything falls apart.

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Rick Rule's Primer On Contrarian Speculation

What's important is that good markets are for selling and bad markets are for buying; it's counterintuitive. Your perception of how events will play out in the future is determined mostly by your experience in the immediate past; and if the last three investment decisions that you've made have rewarded you – if you feel good about your precepts – you begin to do something natural, which is confuse a bull market with brains, and you begin to become very aggressive. If your last three decisions – irrespective of whether they were well thought out – haven't played out so well, you become cautious. What you need to do is teach your brain to overwhelm or overrule your heart and understand that cheaper is better and more expensive is less good. It's difficult, but it must be done. Many things that are rewarding are difficult.

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PIMCO Total Return Fund MBS Holdings Hit Record $137 Billion As Fund Rises To All Time High AUM

Not many changes in this month's Total Return Fund (PIMCO) flagship fund update: Bill Gross kept his MBS exposure at 53%, while lowering his net margin cash position from -23% to -18%, courtesy of a decline in Emerging Markets exposure from 10% to 7%. Exposure to all other products remained relatively flat. The one major difference is that TRF AUM rose from $252.5 billion to $258.7 billion, a $6 billion inflow in one month, and an all time high for the fund. As a result, the proportional exposure to MBS rose to $137 billion from $134 billion in absolute notional: also an all time record. Despite recent jawboning by both good and bad Fed cops, Gross is not wavering and is certain that when QE comes, and it will, it will not be some sterilized intervention (which is impossible as the Fed no longer has short-term bonds to sell), but outright MBS/QE, most likely in a 5/3 ratio. Additionally, we also learned that the effective duration of the TRF portfolio slumped to 4.61 years, the lowest since July 2011, when Gross was convinced America was going to hell. This one is somewhat confusing although we attribute the duration crunch to the ongoing surge in MBS holdings, and to a repositioning toward short-dated TSY paper.

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Guest Post: What Austerity?

By mainstream media accounts, the presidential election in France and parliamentary elections in Greece on May 6 were overwhelming verdicts against “austerity” measures being implemented in Europe. There is only one problem. It is a lie. First off, austerity was never really tried. Not really. In France for example, according to Eurostat, annual expenditures have actually increased from €1.095 trillion to €1.118 trillion in 2011. In fact spending has increased every single year for the past decade. The debt there increased too from €1.932 trillion €1.987 trillion last year, just as it did every year before. Real “austere”. The French spent more, and they borrowed more. The deficit in France did decrease by about €34 billion in 2011, but that was largely because of a €56.6 billion surge in tax revenues. Again, there were no spending cuts. Zero. Yet incoming socialist president François Hollande claimed after his victory over Nicolas Sarkozy that he would bring an end to this mythical austerity: “We will bring back Europe on a track for jobs, growth and the future… We’re no longer doomed to austerity.” This is just a willful, purposeful distortion. What the heck is he talking about? Certainly not France.

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11th Consecutive Outflow From US Equity Mutual Funds Pulls Cash Levels To Record Lows

We are unsure what is more notable in this week's most recent fund flow update: that in the week ended May 2, investors pulled out another whopping $6.6 billion out of domestic equity mutual funds, the 11th consecutive, and a total of $42 billion in 2012 (compared to $10 billion over the same period in 2011), or that as the chart below shows, the two identical S&P overlay arrows (identical in their length and angle) demonstrate just how comparable the effect of QE2 and Operation Twist, or QE3, have been. the two arrows also demonstrate without a doubt, that, as Goldman admitted last month, the "flow" effect at the long-end of the curve (thank you Chubby Checker) is what it was all about, which means that sterilized QE is bunk, and all that matters is of the Fed to be actively monetizing something, anything, in order for stocks to go higher. Regardless, the only question left now is not whether the same drift back lower by 200 S&P point that stocks experienced after the end of QE2 will happen, but when and how rapidly it will take place, just in time for QE4 (NOT Operation Twist-er) to be announced in June. And finally, for those wondering how it is possible that every month US investors can pull cash out of mutual funds without them running out of cash, we say: observe the distinct pattern in Chart 2, which shows that as of March mutual funds held a record low 3.3% in liquid assets on their books.

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Market Has Longest Losing Streak In 10 Months

For the first time since last July, right before the market's grand plan collapse, the Dow has fallen for 6 days-in-a-row. We could of course have just copy/pasted yesterday's end-of-day as today was a case of deja deja vu all over again as we sold off hard overnight (basically top-ticking right before the US day-session close), made new overnight lows, then managed a miraculous rally into and across the European close only to stall once again as the dip-buying algos enabled bigger blocks to dump into momentum retail players. The European close hour saw your standard 4-sigma swing (low to high) in ES (S&P 500 e-mini futures) but gave half of it back it its typical VWAP reversion as for three days in a row we have dipped and tested the S&P's 50DMA and rallied on lower volume (though ended the day with the 3rd highest volume of the year). The USD rallied further with the EUR ending around 1.2950 (though off its lows of the day) but once again commodities (which sold off pretty hard overnight) managed to crawl their way back higher (closing rather interestingly at the same levels at which they opened the European day-session). VIX ended above 20% (its highest close in a month) and its flattest term structure in five months. Treasuries ended the day marginally changed (-1bps 10Y, +1bps 3Y) but ended well off their low yields of the day. High yield credit was a major underperformer - ending below yesterday's lows (as was IG credit) - bearishly diverging from equities again.

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US Market Wrap – 09/05/12

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Bank Of Spain Formally Nationalizes Bankia, Says Insolvent Bank Is "Solvent", Adds There Is No Cause For Concern

The only thing funnier than a nationalization statement spun as positive, or favorable for taxpayers, is one that has been Google translated, in this case from Spanish, courtesy of Bank of Spain, which has just formally bailed out Bankia, leaving the best for last: "In any case, BFA-Bankia is a solvent entity that continues to function quite normally and customers and depositors should have no concern." Move along. Nothing to see here. Nobody should be concerned.

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