According to data released by ACEA (European Automobile Manufacturers’ Association) new passenger car registrations fell 8.9% in August after a decline of 7.8% in July. In 2011, Germany produced 5.8 million passenger cars, of which 77% (4.5m) were exported, making cars and parts the most valuable export good (EUR 185bn). A heavily export-dependent German automotive industry looks vulnerable to setbacks in important markets.
Bernanke took the plunge yesterday by embarking on QE3 or what would be better described as “Currency Debasement 3”. Improving the U.S. job market and therefore economy was the reason given for the extremely radical measures. However, the scale of the open ended monetary commitments suggests the Fed is worried about another Great Depression and an economic collapse. The move was described as "stunningly bold" by some analysts as it is "open ended" with Bernanke pledging to print or electronically create, with no time limit, an extra $40 billion every single month until the labour market improves. This is the frightening vista we have been warning of for some time. It means that should the US economy enter a recession and or depression, which still seems very likely, that the Fed will continue printing money and debasing the dollar thereby leading to dollar devaluation and inflation - potentially virulent inflation on a par with or worse than that seen in the 1970's. We had long said that QE3 was inevitable - the question was when rather than if. Indeed, we had said that given Bernanke's closeness to Wall Street we expected that QE4, QE5 etc. were likely. The "open ended" nature of this new round of QE as enunciated yesterday means that the Fed could if it wished or believes it is necessary print unlimited quantities of dollars.
There are already three former European central bankers who criticize more or less openly the European Central Bank (ECB). All these older central bankers experienced the inflationary periods in the 1970s in detail, whereas the younger ones seem not to grasp what inflation means. Modern central bankers seem to think that monetary inflation will not lead to price inflation in the long-term. This might be true in countries where asset prices need to de-leverage after the bust of real-estate bubbles. But it is certainly not true in states like Germany, Finland or Switzerland, that did not have a real-estate bubble till 2008. With current low employment and the aging population, qualified personnel who speaks the local language will get rare. PIMCO’s Bill Gross might be right saying that soon employees want to get a part of the cake and not only the stock holders. This essentially implies wage inflation, the enemy of the 1970s.
This Monday, a few shorts days after the Knight algorithm decided to do what it and the Fed does best, and go on a shopping spree, gobbling up $7 billion in stocks in 45 minutes and in the process almost destroying its host like any self-respecting virus, something weird happened with the 1.20-pegged EURCHF in the minutes after the marked closed: it shot up for no reason, only to slam right back down. Some speculated it was a fat finger. Turns out they were right. Only with a twist, as first it appears it was purely human error, which in turn set of an avalanche of algo trades which had no idea why they were buying, except that someone else was buying, so they had to be buying: the purest definition of momentum trading insanity, where one buys or sells with no rhyme or reason, but simple because someone else, marginal enough, is moving the market. And that is why every single capital market: stocks, bonds, commodities and FX, is always one trade away from total collapse.
The World Gold Council have just published their commentary on gold’s price performance in various currencies, its volatility statistics and correlation to other assets in the quarter - Gold Q2, 2012 - Investment Statistics and Commentary. It provides macroeconomic context to the investment statistics published at the end of each quarter and highlights emerging themes relevant to gold’s future development. One of their key findings is that gold will act as hedge against possible coming dollar weakness and gold will act as a "currency hedge in the international monetary system." The key findings of the World Gold Council’s report are presented inside.
The sharp losses in the gold mining sector Friday and last week could presage further weakness today but the higher weekly closes for gold and silver were constructive from a technical perspective.
After initial gains in Asia, gold fell early in Asian trading prior to recovering and then weakening again bang on 0800 GMT as Europe opened (see chart below).
Gold is higher in euro and Swiss franc terms but slightly lower in dollars and pounds.
Peak oil is a phenomenon many will be aware of – peak gold remains a foreign concept to most. Peak gold is the date at which the maximum rate of global gold extraction is reached, after which the rate of production enters terminal decline. The term derives from the Hubbert peak of a resource. Unlike oil and silver, which is destroyed in use, gold can be reused and recycled. However, unlike oil gold is money, a store of value and a foreign exchange reserve and gold is slowly being remonetised in the global financial system and indeed may soon play a role in a new international monetary system. Ore grades have fallen from around 12 grams per tonne in 1950 to nearer 3 grams in the US, Canada, and Australia. South Africa's output has halved since peaking in 1970. Peak gold may not have happened in 2000. Nor may it have happened in 2011. However, the geological evidence suggests that it may happen in the near term due to the increasing difficulty large and small gold mining companies are having increasing their production. The fact that peak gold may take place at a time when the world is engaged in peak fiat paper and electronic money creation bodes very well for gold’s long term outlook.
Nearly full employment in all the cited developed economies except the US shows that the deflationary environment of the recent months is only temporary. Deflation is rather an effect of the recent strong fall in commodity prices. No wonder that the Fed is still reluctant to ease conditions; they saw the opposite temporary commodity price movements last year. We do neither expect a global inflation nor a deflation scenario but a balance sheet recession in many countries but still an increase of wages and therefore a very slow global growth in both developed and developing countries and continuing disinflation (see chart of Ashraf Alaidi to the left). CPIs will look soon similar for all developed countries, with the consequence that the currencies of the most secure and effective countries (measured in terms of trade balance and current accounts) will appreciate. These are for us e.g. Japan, Switzerland, Singapore and partially Sweden and Norway. The overvalued currencies with weaker trade balances like the Kiwi and Aussie must depreciate.
On occasion of the publication of his new gold report (read here), Ronald Stoeferle talked with financial journalist Lars Schall about fundamental gold topics such as: "financial repression"; market interventions; the oil-gold ratio; the renaissance of gold in finance; "Exeter’s Pyramid"; and what the true "value" of gold could actually look like. Via Matterhorn Asset Management.
Gold Report 2012: Erste's Comprehensive Summary Of The Gold Space And Where The Yellow Metal Is GoingSubmitted by Tyler Durden on 07/11/2012 12:21 -0400
Erste Group's Ronald Stoeferle, author of the critical "In gold we trust" report (2011 edition here) has just released the 6th annual edition of this all encompassing report which covers every aspect of the gold space. What follows are 120 pages of fundamental information which are a must read for anyone interested in the yellow metal. From the report: "The foundation for new all-time-highs is in place. As far as sentiment is concerned, we definitely see no euphoria with respect to gold. Skepticism, fear, and panic are never the final stop of a bull market. In the short run, seasonality seems to argue in favor of a continued sideways movement, but from August onwards gold should enter its seasonally best phase. USD 2,000 is our next 12M price target. We believe that the parabolic trend phase is still ahead of us, and that our long-term price target of USD 2,300/ounce could be on the conservative side."
What's in the "Print" today? Not these issues.
Looks like the long-anticipated E-bay auction for Santorini may be closer than expected: in the aftermath of Greece's now absolutely bankrupt status, whereby the comatose patient is kept alive only thanks to a Made in Germany ventilator, it was only a matter of time before the country started with the Blue light special firesales. Sure enough from Bloomberg: "National Bank of Greece SA is preparing to sell an Athenian Riviera resort, visited by world leaders and movie stars for more than half a century, in a test of the country’s ability to sell assets amid concern that it will leave the euro. The 3.3 million-square-foot Astir Palace complex has already drawn investors’ interest, according to Aristotelis Karytinos, general manager of real estate at the lender. The Athens-based bank and Greece’s privatization fund, which owns part of the property, will put out a public tender in coming months, he said." Why is the Astir Palace unique? "Since its opening in 1960, the resort’s guests have included Jackie Onassis, Nelson Mandela, Tony Blair, Jane Fonda and Frank Sinatra, according to the resort’s website. Astir Palace in 1993 and 2009 hosted the Bilderberg conference." Something tells us we know just where the winning bid for the last remaining Greek assets may come from.
Gold dipped today despite Wall Street hopes that the US Fed will embark on more QE. As we have said for some time QE3, or a new term for electronic and paper money creation, is a certainty and this will lead to inflation hedging and safe haven demand for gold.
Yesterday, Reuters royally spooked the market when it announced that Europe is in all seriousness considering full blown capital controls, including border halts and ATM closures. Subsequently, various European talking heads aggressively tried to talk down this latest development. However, overnight Saxo Bank appears to have focused on the former and not the latter, and sent out an email with the following key text: "Due to the current market environment in Europe, Saxo Bank is adjusting the margin requirement for Swiss Franc (CHF)." Specifically, the margin is going from 1% to 2% on June 14, to 4% on June 21. How soon until margins become so high that they effectively act as an FX trading prohibition- i.e., an implicit "capital control", and how long until all other exchanges get the memo next?