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The Fed vs The ECB - Presenting "The Correlation Of 2012" And What It Means For Gold

Tyler Durden's picture


If there is one cross asset correlation that defined 2011 (and the greater part of 2010), it was that of the Euro-Dollar (EURUSD) currency pair and the S&P 500, which have correlated with near unison nearly all of the time. And yet, the stability of this correlation may be getting unglued, because as Goldman insinuated in its market roundup note from yesterday, it is "reasonable to think that the ... reflexive relationship between EURUSD and SPX...will take some time to break, but this correlation should start to fray." Why? Because, "like the FED before them, the ECB is aggressively expanding their balance sheet." Which brings us to the point of this article: much to the dismay of the armies of disgruntled bankers and investors demanding that the ECB print right now, the ECB has in fact been printing, as shown the other day. Only it has not done so in the conventional sense where it assumes an "asset" on its balance sheet while expanding a monetary liability, but indirectly through shadow conduits, such as repo and other liquidity backstops, also as shown yesterday, where no new currency actually enters the system, yet whereby the balance sheet expands just as efficiently (and in doing so, dilutes the underlying currency). It is well known that it has been our contention that in this centrally planned world the only thing that matters is the global provisioning of liquidity by the monetary authority, as the ultimate marginal determinant of Risk On behavior (and inversely Risk Off), is how much ZIRPy cash do speculators (and more importantly Prime Brokers) have at their possession (for outright and (re)hypothecated purchasing purposes). So here we would like to make a distinction: it is not so much how much cash one global monetary central planner will provide to markets, but how much the various standalone central banks will inject, in whole or in part. We contend that for 2012 the key qualifier will be "in part" with the ECB and the Fed printing (either outright or via repo) in staggered regimes, and thus the primary determinant of "risk", the EURUSD, will be the relative ratio of the two balance sheets. This can be seen on the charts below, the first of which shows just how dramatic the ECB expansion has been in the past 6 months, and the second showing the correlation between the EURUSD and the ratio of the Fed to the ECB.

First, the balance sheet of the ECB vs the Fed:

And second, the correlation of EURUSD vs the relative central bank sizes: i.e "The correlation of 2012"

And where the EURUSD goes, broad risk will follow as all it indicates is a willingness of the respective monetary authority to increase liquidity. It also explains why the EURUSD is likely to trade in the 1.20-1.50 corridor for a long time, as any time the EUR currency plunges, the US economy experiences a dramatic slow down, and inversely, whenever the EURUSD approaches 1.50, Europe, and specifically Germany, sees a substantial slow down in economic output. As such, this range will specify the probable willingness of either central bank to engage in aggressive monetary easing. It is no surprise that since the ECB started "printing" in all but name in July, the EUR has seen a gradual and consistent decline.

There is another corollary: while gold has been stagnant and dropping since peaking in September on disappointment that the Fed did not proceed with outright unsterilized printing and instead engaged in offsetting LSAP-LSAS QE3 under the guise of "Operation Twist 2", gold has completely failed to notice that while the Fed has been net silent, another bank has injected a whopping €500 billion in the past 6 months, or more than the Fed did in all of QE2! Ironically, the broader "risk on" crew has not missed this, and while gold continues to be stuck in the old paradigm, it refuses to comprehend that explicit guarantees of trillions in debt (such as the LTRO repo operations), is an equivalent operation to printing money.

We fully expect the correlation arbs, which usually need someone to point out the glaringly obvious to them before they encode given relationships and correlation pairs into buy and sell signals, will very soon comprehend why the one most underpriced asset at this point, by orders of magnitude, is gold. For the simple reason that currency debasement has been going on feverishly, if behind the scenes, for the past 6 months, and gold is nothing more, or less, than a hedge against monetary dilution. By anyone. That most certainly includes the ECB as well.

We, also, for one, hope to be fully prepared for the instant when the "Eureka" moment strikes.

And here, for the benefit of said slowish arbs, to explain just why liquidity provisioning is the same as bond buying, is SocGen with an expanded narrative on how Draghi took away the bazook and replaced it with a thousand just as effective slighshots.

From SocGen:

There continues to be an expectation that the moves to a more disciplined fiscal union will clear the way for a significant increase in the scale of the ECB’s support for the bond market. However, at December’s press conference, ECB President Mario Draghi, emphasised that the Lisbon Treaty forbids the monetary financing of sovereign debt. We also believe that the ECB wants to avoid the moral hazard implicit in large scale bond purchases since this would potentially reduce the pressure on national governments to undertake the necessary reforms. Jens Weidmann, the Bundesbank Chairman for example, has repeatedly argued that Italy “can live with interest rates over 7% for years.” This is a reference to the yield curve simulations included in the latest BIS quarterly review for example, which demonstrate that even if the yields reached on 9 November were sustained, the relatively long maturity of Italy’s debt stock (around 7 years) means that it would take years for the debt service costs to snowball significantly. This is a clear indication, that in the Bundesbank’s view at least, the ECB will not be intervening to set a ceiling for bond yields.


In our view therefore, any increase in ECB bond buying is likely to come in the form of greater longevity rather than an increase in size, although the ECB may not acknowledge this explicitly. Even so, we envisage the ECB’s SMP continuing at roughly its current volume throughout 2012 and potentially into 2013. This probably implies a further €200-250bn of bond purchases over the next twelve months which would mean the ECB is effectively absorbing the new gross supply from Spain and Italy. This implies roughly a doubling of the SMP to the €500bn mark over the next 12 months. Overall, when one takes into account all of the ECB’s policy initiatives then amounts involved are indeed adding up. Taken together with the relaxation of reserve ratios, which we think is worth about €100bn, the roughly €300bn of excess liquidity the ECB and the ECB’s covered bond purchase programme (currently just over €60bn but planed to increase by another €40bn), then the ECB’s interventions are actually very sizeable. The extension of the ECB’s money market operations to 3 years may also prove to be significant since this will provide banks with additional funds that are in turn likely to be invested in sovereign bonds up to a similar duration – something that the French Central Bank Governor, Christian Noyer has described as “our bazooka”.



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Thu, 12/22/2011 - 22:43 | 2006192 SHEEPFUKKER

Roubini must be looking at this data to proclaim gold was a bubble. ;)

Thu, 12/22/2011 - 23:11 | 2006239 strannick
strannick's picture

Great article.

While the stock markets sit on edge and disappointedly wait for  Bernanke's mouth to say 'QE3', he twists and swaps QE3 into the monetary system.

Likewise the market twiddles its thumbs waiting for the ECB debt monetization of deadbeats, it LITRs more QE than even the FED (la bazook).

Eventually all this inceditary paper is going to light a fire under golds ass, and send it leaping over the moon

Thu, 12/22/2011 - 23:11 | 2006256 I think I need ...
I think I need to buy a gun's picture

i can tell by all these articles and the comments everywhere that everyone is anxious now about gold.......this is it people the paper market is done,,,,,,,it could come anyday now,,,,,,its almost all over

Fri, 12/23/2011 - 00:45 | 2006448 Oh regional Indian
Oh regional Indian's picture

"The Lisbon treaty prohibits the monetary financing of debt". Paraphrase. Therefore, ergo etc., all the slosh wil come through back-doors. Which no one can see.

And gold's price correlation matrix has Oil and Petrodollar as it's key off-sets.

How are they doing? How are they going to be doing? 




Fri, 12/23/2011 - 01:48 | 2006517 fnord88
fnord88's picture

A Christmas carol for our times: Granny got indefinatley detained

Fri, 12/23/2011 - 02:20 | 2006551 PulauHantu29
PulauHantu29's picture

Gold price up ~35% in euros:

So the yellow metal does reflect the expamsion of the money supply in the EU when priced in euros. Right now the dollar is strong so it has pulled back temporarily in dollars...imho.

Thu, 12/22/2011 - 23:25 | 2006288 JumpinJonnyK
JumpinJonnyK's picture

Ron Paul supporters sign the pledge at  Dont let the media steal this election!

Thu, 12/22/2011 - 23:35 | 2006312 Teamtc321
Teamtc321's picture

Ron Paul supporters can also use to get the word out. 

Fri, 12/23/2011 - 00:06 | 2006377 Silver Bug
Thu, 12/22/2011 - 23:47 | 2006342 Freddie
Freddie's picture

Anyone know if Ron Paul has come out and said he would repeal that military/govt rentetention/arrest of Americans?  I know based on The Constitution that Congress should undo it.  All the GOP candidates should take the pledge to dump that.

Gingrich is the worst of the bunch.


Fri, 12/23/2011 - 00:23 | 2006403 GMadScientist
GMadScientist's picture

Demoncrats: 141 Y, 96 N

Repugnants: 234Y , 46N

Yeah...good luck with that!

Fri, 12/23/2011 - 15:00 | 2007884 DaveyJones
DaveyJones's picture

I guess they voted down the fact that you posted their votes, weird

Fri, 12/23/2011 - 00:04 | 2006372 Silver Bug
Silver Bug's picture

Gold of course is incredibly under valued. Nothing has changed in this last month, the paper pushers have sent a massive amount of the western gold east in this last month. They and unfortunately us, will regret that in the coming years.

Fri, 12/23/2011 - 01:39 | 2006505 xela2200
xela2200's picture

There was a lot of emotional damage inflicted on bulls. Another way of looking at also is that gold and silver have been beating to a strong support level, and it is now like a coiled spring. I don't think that the Dollar index will go up too much higher than 80 because of the Euro at 1.30. Zero Interest rate, Insolvent banks, debt ceiling, and real estate are good arguments for prices going up. Not least, who wants a down stock market on an election year (spill over)? As a caveat though, in a market with so much uncertainty (FED/Government/Manipulation) it is a bit of a gamble.

It is unbelievable the amount of gold central bankers had to dump to cause that fall just to give "value" to the money they are printing. They literally gave China, Russia etc such a generous x-mas gift. The transfer of gold just blows my mind.  The Chinese are building the back bone of their future currency, and they got it wholesale from ours. That is an incredible act of desperation and disregard for their own people. Unelected bureaucrats selling their countries' assets which are doing more economic damage than a war.  If you through all of them down a well, all that You would hear is me me me

I believe that on the long run the markets will impose themselves like a force of nature. Hopefully, I am still around to see that day.

Merry x-mas expendables

Fri, 12/23/2011 - 01:53 | 2006521 UnderDeGun
UnderDeGun's picture

You and I, both.

Fri, 12/23/2011 - 01:45 | 2006513 SheepleLOVEched...
SheepleLOVEcheddarbaybiscuits's picture

nothing else vacation is on right now

Fri, 12/23/2011 - 05:04 | 2006619 philipat
philipat's picture

I am amazed that even the financial media are not calling the ECB action QE. If the Fed pushed EUR 500 Billion into the PD's it would immediately be described as QE. But if the ECB pushes the same amount into the European banking system, is it somehow NOT QE? If NOT QE (IE Printing) where do they think the "Money" cane from. The tooth fairy perhaps?

Thu, 12/22/2011 - 22:45 | 2006196 ACP
ACP's picture

Jesus Christ. All this means is that the Fed will have to come up with some more complicated ways to fuck with investors who invest in things that SHOULD increase in value.

Thu, 12/22/2011 - 23:33 | 2006307 spiral_eyes
spiral_eyes's picture

2012 will be a fun year.

"There’s one thing I can’t help noticing: a third world country with America’s recent numbers — its huge budget and trade deficits, its growing reliance on short-term borrowing from the rest of the world — would definitely be on the watch list.

So is America safe, despite its scary numbers?

Third world countries typically suffer from institutional weaknesses. They have poor corporate governance: you can’t trust business accounting, and insiders often enrich themselves at stockholders’ expense. Meanwhile, cronyism is rampant, with close personal and financial links between powerful politicians and the very companies that benefit from public largesse.

The crisis won’t come immediately. For a few years, America will still be able to borrow freely, simply because lenders assume that things will somehow work out.

But at a certain point we’ll have a Wile E. Coyote moment. For those not familiar with the Road Runner cartoons, Mr. Coyote had a habit of running off cliffs and taking several steps on thin air before noticing that there was nothing underneath his feet. Only then would he plunge.

What will that plunge look like? It will certainly involve a sharp fall in the dollar and a sharp rise in interest rates. In the worst-case scenario, the government’s access to borrowing will be cut off, creating a cash crisis that throws the nation into chaos.

I know: it all sounds unbelievable. But would you have believed, three years ago, that the U.S. budget would plunge so quickly from a record surplus to a record deficit? And would you have believed that, confronted with that plunge, our leaders would offer excuses rather than solutions?"

— Paul Krugman (2003)


Fri, 12/23/2011 - 00:28 | 2006414 LowProfile
LowProfile's picture

One of your blog's commenters summed it up neatly:  "I think Krugman is more a Democrat than an economist – to him Bush’s deficit is warning but Obama’s is good for the economy."

Fri, 12/23/2011 - 04:45 | 2006605 onebir
onebir's picture

"Third world countries typically suffer from institutional weaknesses. They have poor corporate governance: you can’t trust business accounting, and insiders often enrich themselves at stockholders’ expense. Meanwhile, cronyism is rampant, with close personal and financial links between powerful politicians and the very companies that benefit from public largesse."

Not sure whether he meant to or not, but I think Krugman just said the US is a third world country. :)

Thu, 12/22/2011 - 22:46 | 2006200 DaveyJones
DaveyJones's picture

"We, also, for one, hope to be fully prepared"

where have I heard that?

Fri, 12/23/2011 - 00:12 | 2006391 BigDuke6
BigDuke6's picture

Maybe they mean they got plenty of lead to look after that gold

Fri, 12/23/2011 - 00:24 | 2006407 DoChenRollingBearing
DoChenRollingBearing's picture

+ 9 mm!

Fri, 12/23/2011 - 01:57 | 2006525 UnderDeGun
UnderDeGun's picture


Fri, 12/23/2011 - 10:23 | 2006914 n8dawg84
n8dawg84's picture

I'm undecided on 9mm or .45.  my buddy says 9mm cause its cheaper and is used worldwide.  I lean towards .45 cause of the stopping power.  I guess it's personal preference, but I'd like some input from the ZHers regarding this matter, please.  Thanks in advance

Sat, 12/24/2011 - 00:52 | 2008847 ThrivingAdmistC...
ThrivingAdmistCollapse's picture

If we have a full scale economic collapse followed by a mad max world, then perhaps copper wrapped lead would be a good commodity investment :P

Wed, 12/28/2011 - 16:20 | 2017069 ultraticum
ultraticum's picture

.308 battle rifle's the way to go.  That is, if you can't get to your .50 cal.

Fri, 12/23/2011 - 13:12 | 2007439 IrritableBowels
IrritableBowels's picture


Thu, 12/22/2011 - 22:50 | 2006209 Snakeeyes
Snakeeyes's picture

I wrote this a few days ago. This will NOT end well.

Clash of the Titans: Fed Versus ECB Balance Sheets. ECB Offers As Much Money As Banks Want for 1,124 Days!

Thu, 12/22/2011 - 23:03 | 2006234 navy62802
navy62802's picture

The currency wars have begun. Got gold??

Fri, 12/23/2011 - 01:58 | 2006529 UnderDeGun
UnderDeGun's picture

Got food and toilet paper?

Thu, 12/22/2011 - 23:04 | 2006237 greedo
greedo's picture

So basically "central banks" have injected €500 billion or about $700 billion in extra liquidity, since June and gold has gone... down?

And all those chatterboxes on TV are talking about gold dropping because it took out some daily moving average?

And we have to learn about this from a blog?

Thu, 12/22/2011 - 23:10 | 2006250 Mad Marv
Mad Marv's picture

Blogs are the new media.  I think of the major TV networks as those Telescreens in Orwells 1984. 

Thu, 12/22/2011 - 23:15 | 2006264 mayhem_korner
mayhem_korner's picture



You left out the coordinated margin calls.

Thu, 12/22/2011 - 23:18 | 2006271 Sam Clemons
Sam Clemons's picture

From my limited experience, investing requires anticipating action.  Price generally increases before the causes become apparent. 

Gold started rising around 2000 when I believe people were proclaiming how great it was that Clinton balanced the budget.

And even now, buying gold still doesn't seem that strange because there is so much debt in the system that all the world's central banks are going to have to loan more money into existence to cover.  What about funding those $100Tr in unfunded liabilities?  Magic?

Thu, 12/22/2011 - 23:20 | 2006276 mayhem_korner
mayhem_korner's picture

investing requires anticipating action. 


Don't confuse investing with trading.  Investing is about preserving and augmenting future purchasing power and subordinates temporal price movements to fundamental drivers. 

Fri, 12/23/2011 - 00:19 | 2006399 Vint Slugs
Vint Slugs's picture

"..subordinates temporal price movements to fundamental drivers."

What kind of intellectual slop are you talking?  How about spelling out for us how you have "invested" so as to preserve/augment future purchasing power?  And let's not hear about buying gold or silver in the past 5 years.  Let's hear about that "investing" that you did back in the 20th century - preferably before 1990.

Fri, 12/23/2011 - 08:53 | 2006722 mayhem_korner
mayhem_korner's picture



Maybe dose down the xanax there, slug.  I was just offering my view that "anticipating price action," like charting, is a perspective for trading (monetizing short-term price movements based on speculation about sentiment, trends, etc.).  I don't believe that chasing returns (trading) will matter much when the collapse takes hold if you can't access those holdings and convert them to useful things.  Between now and then, the game is staying liquid while accumulating tangible assets.

Since you asked, the main thing I've invested in is a diversified client base.  My from-scratch business has provided a good return, and the primary thing to preserve future value from that is to ensure it isn't wiped out by some sector-specific plague.  That investment has allowed me to accumulate things in which to store that value, including what most here would consider significant holdings of physical gold and silver, plus stockpiles of hard assets and real estate.

Thu, 12/22/2011 - 23:48 | 2006343 disabledvet
disabledvet's picture

"thought thiefs" will fund the deficit. imagine the spending reductions in such a world. We all are forced to tell the truth no matter what? that would mean a lot of guilty pleas. the Court System would immediately be "de-clogged." One could "conquer a country with an Army of Actors." Truly AWESOME amount of power...and one the entire planet has already..."bought into" i might add. Should we be afraid of that world? Where people feel "compelled to tell the truth unless they were acting" because "that internet thing knows what i am thinking"? I would not be a buyer of what Wall Street is selling in this world of course. Since when did they ever tell the truth? They do have an "impressive megaphone" however. Believe me when i tell you ..."when those guns go silent it will be as if they were never there ever." Try it sometime. "Turn off your television for one week and see how you feel." You will become angry, irritable..and then suddenly "you'll feel this amazing sense of freedom. like i never needed it at all." And of course you don't!

Fri, 12/23/2011 - 02:15 | 2006549 Oh regional Indian
Oh regional Indian's picture

DV, for the record, I find your comments incisive and/or funny. Most of the time. :-)


Thu, 12/22/2011 - 23:21 | 2006277 earleflorida
earleflorida's picture

some blog - how dare you!

this is ZeroHedge, not some shit-ass blog

that is tyler speaking not some con artist fwiw

Thu, 12/22/2011 - 23:06 | 2006243 bob_dabolina
bob_dabolina's picture

If gold goes up, stocks go up; stocks pay dividends.

Thu, 12/22/2011 - 23:18 | 2006272 mayhem_korner
mayhem_korner's picture



Try yer correlation matrix, bd.  I'm guessin' it's not quite an IID diagonal, given that gold's up 14% YTD and stocks are flat.  :D

Fri, 12/23/2011 - 00:08 | 2006383 AC_Doctor
AC_Doctor's picture

Can we all pitch in together and get this a-hole a one oz. AG Eagle so he can shut the fuck up?

Fri, 12/23/2011 - 00:36 | 2006431 jez
jez's picture

And we can't eat our gold, right Bob?

Fri, 12/23/2011 - 02:06 | 2006537 UnderDeGun
UnderDeGun's picture

5% of zero is still nothing when the spark evaporates the markets. Gold requires seriously high temps to turn to vapor.

Thu, 12/22/2011 - 23:09 | 2006247 trentusa
trentusa's picture

The ECB commenced w/ the LTROs the day after Bank of America dipped below $5 into junk status.


Did the ECB just bailout BAC, or is that timing a coincidence (bc i thought for a min Germany wasn't going to let them print)??

Thu, 12/22/2011 - 23:10 | 2006248 Goldilocks
Goldilocks's picture

About SocGen: (Without getting into specifics...)... WTF !?!

Fri, 12/23/2011 - 00:15 | 2006395 Vint Slugs
Vint Slugs's picture

I agree.  SocGen presents pretty graphs but reality doesn't conform (or confirm).

Thu, 12/22/2011 - 23:16 | 2006265 mayhem_korner
mayhem_korner's picture



My CBs balance sheet is bigger than yours.  Na-na-na-na-na-nah.

Thu, 12/22/2011 - 23:21 | 2006278 Caviar Emptor
Caviar Emptor's picture

Ahh the complexities of a Biflationary world....most of the "experts" and "-istas" still don't get it....the road to inflation is encumbered with deflation

Thu, 12/22/2011 - 23:26 | 2006291 RobotTrader
RobotTrader's picture

Drudge Report Headlines:  $15 Trillion and counting


Meanwhile, Treasuries continue to surge as investors simply can't get enough paper.

Fri, 12/23/2011 - 00:19 | 2006329 akak
akak's picture

Idiotic RobotLemming posts on ZeroHedge: 15 trillion and counting

Meanwhile, RobotLemming's teeny little boner continues to surge as he simply can't get enough of Bernanke's economic central planning and monetary manipulation and depreciation --- or even bother to acknowledge the difference between "real" and "nominal".

Fri, 12/23/2011 - 00:26 | 2006408 DaveyJones
DaveyJones's picture

contact your physician if you have an equities rise lasting more than four hours

Fri, 12/23/2011 - 00:41 | 2006438 akak
akak's picture

Those who are taking MAO truth inhibitors should not read the replies to RobotLemming's posts, as it may cause an uncontrollable rise in their blood pressure (and an uncontrollable sinking feeling in regards to their NFLX and LULU portfolios and US Treasuries holdings).

Fri, 12/23/2011 - 00:46 | 2006453 DaveyJones
DaveyJones's picture

which reminds me, would a retail site that sells nothing but mumus take up too much bandwidth?

Fri, 12/23/2011 - 00:55 | 2006463 akak
akak's picture

Oh, is that what they sell?  Here I thought it was some artisanal agricultural co-op marketing specialty lemons. 

It would probably be better for Robot if that were the case --- he would then have something healthy to suck on, instead of constantly having Bernanke's wizened member in his mouth.  I hear that kind of thing can eventually cause an overbite.

Fri, 12/23/2011 - 00:05 | 2006375 AC_Doctor
AC_Doctor's picture


Those 0% returns on 3 month paper are truly outstanding!

Fri, 12/23/2011 - 00:06 | 2006378 Goldilocks
Goldilocks's picture

Curtis Mayfield - Pusherman

Easy Rider - Steppenwolf - The Pusher

Thu, 12/22/2011 - 23:36 | 2006315 disabledvet
disabledvet's picture

Blah, blah, blah....hummina, hummina, hummina. "Gold ain't puttin' food on the table" people--no matter what direction the price moves. In order to eat you have sell. "Nobody lives on the buy side alone"...and i mean nobody. Imagine "thought thiefs" however. Now THOSE guys "bring home the bacon"! I've been searching the Web for "The Thought Police" in order to demand "copyright protection for what i'm thinking!" Unfortunately while we are the only nation in the world that has a Patent departnment there are no "thought police" to protect what you think. I demand an audience before Congress! And before you read my mind i demand payment cuz "these thoughts make money" asswipe. (properly interpreted of course.) And in case you're wondering "who's reading your mind disabledvet" well...let me answer by saying "in the Age of the Internet...who isn't" since what greater form of mind reading can there be than "what you say and how you say it" posted for the entire world to see? "Just add the video feed and you're good to go" right? Thank God than Internet thing is regulated!

Fri, 12/23/2011 - 01:09 | 2006482 Prometheus418
Prometheus418's picture

Forget to take your meds, DV?

Sure, gold sitting still doesn't buy anything, but that's the sentiment of a retail investor, and I hope you're not part of that thrill-seeking crowd.  For my part, I don't need my Ag to put food on the table, that is what my daily grind is for.  Ag is what I do with the leftovers.

But, you're right- if you need your capital to provide an income, gold isn't for you.  As a matter of fact, if that's what you had in mind, I'd just as soon you didn't invest in it- while it's nice that it keeps going on sale, weak hands falling for every move is just drawing this shit out.  I'm not looking forward to collapse by any means, but I don't see a scenario where Dr. O doesn't help make us eat our peas, and I'd just as soon get it over with.

Fri, 12/23/2011 - 01:37 | 2006504 DoChenRollingBearing
DoChenRollingBearing's picture

Hey Prometheus!

Thanks for your clarification of re gray (vs. black) markets in CogDis's comments section yesterday.  That and other comments have gotten the brain working on how to make contacts.

I am still a FOFOA guy.  But, I had not thought of a worldwide confiscation risk.  And who really knows WHAT will happen?

A collapse would be very bad, even for those of us who are prepared.  A site to look at (not just PMs but survival stuff too):

Fri, 12/23/2011 - 08:56 | 2006727 Gully Foyle
Gully Foyle's picture


Dude I got all this Gold in Skyrim and feel the same way you do.

Fri, 12/23/2011 - 08:54 | 2006725 Gully Foyle
Gully Foyle's picture


You Pirated that from me.

Fri, 12/23/2011 - 00:02 | 2006370 At120
Fri, 12/23/2011 - 00:09 | 2006386 holdbuysell
holdbuysell's picture

Sorry, Tyler. I'm having a hard time with the essence on this one. If no new currency is entering the system, how is the underlying currency getting diluted?

Fri, 12/23/2011 - 00:37 | 2006434 sasebo
sasebo's picture

Might want to check a chart on stock vs gold appreciation --------------------

Fri, 12/23/2011 - 01:13 | 2006487 Prometheus418
Prometheus418's picture

That doesn't need Tyler.

All the money we need for stupid levels of inflation has already been injected into the system- a lot of it went overseas, where it will stay until they lose faith in FRNs, and flush it back to us.  The rest has been idly sitting in the holes that are the balance sheets of the TBTFs.  

Someday, all that stagnant money supply will rush back into the system, and it will dilute all at once.  The only way to keep any real strength is for the overall economy to grow about 10x before that happens, and that assumes that no more funny money is created before that happens.

Fri, 12/23/2011 - 00:09 | 2006387 BigDuke6
BigDuke6's picture

I just backed up the truck on gold, the AUD is as good as it will b for a while.... So this article is very soothing , merry Christmas TD.

Fri, 12/23/2011 - 00:25 | 2006404 devo
devo's picture

1500-1600 is the base now.

In early 2012 1800 will be the base, and it'll test 2000. 1800 by March, but probably even earlier.

I'm not sure "deflation" in things we don't need (e.g. run down, over-priced houses) matters. The things we need are inflating, and gold will track those commodities.

Bi-flation is relatively new but very real.

Fri, 12/23/2011 - 00:49 | 2006429 DaveyJones
DaveyJones's picture

also it seems as money becomes more an more worthless it continues to pull away from long term items and risk and crowding more and more against shorter and shorter terms 

Fri, 12/23/2011 - 01:16 | 2006488 Prometheus418
Prometheus418's picture

That's not all nasty, though- if you happen to have a little extra dry powder, there are some stellar deals to be had in durable goods right now.  It's a hell of a good time to buy things like TVs, speakers, toolboxes, and other non-essentials.


Fri, 12/23/2011 - 00:24 | 2006405 PulauHantu29
PulauHantu29's picture

Of course the Fed has been printing and expanding the money supply at least 2% per month. With revenues sinking fast (and predicted to continue falling), there is only one other way to pay for the deficits including the enormous trade deficit. Nomura predicts $3,000 last I read for gold...oil they say $220.


Fri, 12/23/2011 - 00:38 | 2006432 DaveyJones
DaveyJones's picture


Fri, 12/23/2011 - 00:32 | 2006426 sasebo
sasebo's picture

Digital money out the gazoo - too bad that's not how you grow an economy.

By the way, what are trying to accomplish anyway? 

Fri, 12/23/2011 - 00:38 | 2006436 DaveyJones
DaveyJones's picture

digital growth, is that like a penis extension?

Fri, 12/23/2011 - 00:49 | 2006437 PulauHantu29
PulauHantu29's picture

Commodities are taking a breather during this liquidity crunch. As the ECB and Fed printed money trickles in, I suggest  you will see commodites  rise with the flow of paper fiat expansion:

NAB's Oster Expects `Significant Recession' in Europe

Dec. 22 (Bloomberg) -- Alan Oster, chief economist at National Australia Bank Ltd., talks about Europe's sovereign debt crisis. The European Central Bank will lend euro-area banks a record amount for three years in its latest attempt to keep credit flowing to the economy during the debt crisis. Oster speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia."

"...lend a record amount...."...How many $$$$trillions$$$$ will be printed out of thin air?

Fri, 12/23/2011 - 00:43 | 2006445 walküre
walküre's picture

Sorry to disappoint a bit. The LTRO "shell game" (thanks Bill Gross) has done diddly squat for gold. It lifted financial titles across the global markets if you dare pay attention. So... what have we here? Money out of thin air gets flushed into the banks which in turn buy their own stocks to lift their market caps...

Paper gold hasn't caught any of it and neither have gold miners if you're paying attention.

Any thoughts on where we go from here?

Fri, 12/23/2011 - 00:43 | 2006446 Basia
Basia's picture

Eye opening specifics from Jim Willie about the current gold suppression issue.

Fri, 12/23/2011 - 02:40 | 2006561 GBnotEU
GBnotEU's picture

Thanks for that Basia. Long article but very good (and encouraging) analysis.

Fri, 12/23/2011 - 00:46 | 2006454 Variance Doc
Variance Doc's picture

Uhh, Tyler...your "correlation" chart is broken in the statistical/probabilistic sense.

What you have is two series of data plotted on top of each other; there is no correlation other than what the reader may infer.

What really should be plotted is the original series, with a CROSS-CORRELATION function.  With this, we are able to determine the linear predictability of, say, Y(t) from the series of X(t).  In this case, it would be interesting to look at the ratio of the Fed/ECB in predicting the EUR/USD aka  "The cross-correlation of 2012."

Fri, 12/23/2011 - 02:48 | 2006564 Peter K
Peter K's picture

It's also broken in the relative value sense. Don't understand why the charts are not based on a single underlying currency.

Fri, 12/23/2011 - 00:50 | 2006461 John Law Lives
John Law Lives's picture

Now that the Fed and the ECB have hefty balance sheets, who, pray tell, is going to buy the securities from them down the road? Anyone? Anyone? Bueller?

Fri, 12/23/2011 - 01:31 | 2006498 ebworthen
ebworthen's picture

Surely, these geniuses must at some point come to the realization that more credit (debt) and more currency (liquidity) in a contraction cycle will eventually whiplash and create the opposite of the desired effect (?).


Fri, 12/23/2011 - 01:40 | 2006508 chindit13
chindit13's picture

Did 2011 even happen, at least for US investors?

If one goes back and reads ZH articles from one year ago, it seems 2011 would qualify as quite a surprise because of what did NOT happen.  Here's what few expected:

---the 10-year holds well below 2%

---the dollar has gone in circles and will end pretty much where it started, with some individual adjustments against certain currencies

---gold is up, but most expected more than 15%

---silver is unchanged

---US equities are flirting with unchanged, though the current lack of volume will let/encourage somebody to print the close

---UE is steady, or steadily bad

---housing doesn't tank, justs continues its drip lower

---the Tea Party got bored and lost the spotlight

---OWS was a flash in the pan

---nobody has been prosecuted for what happened

Are we going to be sitting here a year from now looking at the same sort of non-events?  Most all would say an emphatic "NO" right now, but most also would have said the same thing a year ago.  I'm an egg-on-my-face, crow-eating "Yes" to both accusations.

Fri, 12/23/2011 - 02:01 | 2006533 Caviar Emptor
Caviar Emptor's picture

Good observations. On the surface there was lack of drama and directional movement in many areas of the market. But therein lies a deep problem. We're in an environment that required a growth spurt and we didn't get it. That's big. Because there's huge debt to be paid and the math simply isn;t working. To me that spells failure of current policy. This was the year that even Bernank began to realize it. 

Fri, 12/23/2011 - 05:00 | 2006614 chindit13
chindit13's picture

I agree.  It is unsustainable, but timing is what matters.  I also agree Bernanke got religion this year.  He's not quite a fanatic, and he might well slip back to his old dissolute ways, but he is reading the good book and asking questions.  His seeming change is the monkey in the works that I am trying to analyze.  I think he has changed his goal from not wanting to be the man who caused Depression II, to being the man who doesn't want to destroy the worldwide fiat system.  At best I suspect he might think he can orchestrate a slow and minimally painful deflation and a protracted, rather than sudden, evaporation of the debt bubble.

At the beginning of the year many of us wrote what we thought would be the Big Issue of 2011.  I said Japan.  I did not foresee the horrendous earthquake/tsunami or anything like that, but I did estimate that 2011 would be the year Japan finished eating its seedcorn (savings negative, savings and corporate profits less than government funding requirements).  I was correct, but I did not consider than foreign money would see value in "diversifying" into 1% JGBs, thereby making up the shortfall.  Maybe 2012?

This is four dimensional chess with hidden wormholes.

Fri, 12/23/2011 - 05:42 | 2006640 dolph9
dolph9's picture

Which is exactly why the only people who can win are the people who don't play the game, i.e. gold owners.

Fri, 12/23/2011 - 09:21 | 2006772 ViewfromUnderth...
ViewfromUndertheBridge's picture

On timing Alisdair McLeod on Gold Money quotes research showing USD vertical vertical of the parabola in Feb 2014...mind you, I read an old ZH article from 2009 that expected US debt to double from 10 Trillion by, we made 50% extra in just two years plus deficits of over $, I'm guessing we make $20 Trillion by 2014 not 2020.

Fri, 12/23/2011 - 01:52 | 2006518 FranSix
FranSix's picture has one of the best and most reliable charts going, which compares moves in the gold price with negative real interest rates, based on the same inflationary assumptions that you would find in  They call this:  'without lies.'

There's been a slight bump up in negative real interest rates, much like the bump prior the previous run-up and blow-off @1033.  What that means is a significant run-up in the gold price is probably in the cards and appears a lay-up.  But what follows will be at least a stiff 30% correction.  A resumption in the bull market will probably continue as long as negative real interest rates persist.

One factor that is not readily accepted by just about anyone in the market is that - not only do you have negative real interest rates, that have fallen very far below inflation, but that the onset of negative nominal interest rates will likely light the fire under gold.

We have so far seen bouts of negative nominal interest rates in the U.S. discount rate surreptitiously, despite the obsolescent Operation Twist.  Swiss rates went negative briefly prior to the swiss franc devaluation against the Euro.  Rates in the one year German bund went negative briefly.  The Euro area yield curve was/is negative at the short end of the curve.

IF LIBOR can jump tens of thousands of basis points, then the incentive to store cash at negative rates is very strong, especially if the tax code allows losses to be written off.  But such a scenario can bring serious money market players into the short term gold market.  We'll see then if Fekete is right about gold backwardation.

Fri, 12/23/2011 - 02:05 | 2006534 BullishBear
BullishBear's picture

The only way gold is climbing back up the ladder is if the US starts printing more than Europe has.  Expect gold to stay range bound until either Euro prints more or deleverages which will dump gold even further.  The only way gold is getting out of this range higher is our buddy ben fires up the presses.

Fri, 12/23/2011 - 02:11 | 2006540 PulauHantu29
PulauHantu29's picture

Where did the ECB suddenyl get $500 Billion to bail out their EU bankers? Didn't Deutschland say, "Nein!"

If the ECB is accepting toxic assets (a la TARP style) in exchange for cash (as was pointed out yesterday by ZH and maligned by Gross)....where does the ECB get the cashola if not from Germany?

Does this mean the ECB simpy passes the worthless toxic assets on to the Fed as collateral for dollars?

Fri, 12/23/2011 - 02:37 | 2006558 Amused2Death
Amused2Death's picture

It sounds that I'm hearing some admitting that LTRO was not a complete failure as we were led to believe, no?

Fri, 12/23/2011 - 02:51 | 2006559 Amused2Death
Amused2Death's picture


Fri, 12/23/2011 - 03:57 | 2006585 Bulletsnbullion
Bulletsnbullion's picture

Gold Bullish:


U.S. Jets Enter Iranian Airspace, Oil Depot Bombed


The Iranian news agency IRNA reported today that a U.S. missile hit an oil depot in the southwest village of Abadan on Wednesday. IRNA said British and American jets had entered Iranian airspace several times. In addition to the oil depot attack, two rockets reportedly hit the village of Manyuhi near the border of Iraq’s al-Faw Peninsula near the Persian Gulf and the Iraqi city of Basra.
Fri, 12/23/2011 - 03:59 | 2006586 PenGun
PenGun's picture

 9x39 mm subsonic.

Fri, 12/23/2011 - 04:23 | 2006595 hourglass86
hourglass86's picture

I am big fan of Zero Hedge but what i dont like is that you guys dont propose a solution for this mess. Please post a solution that doesnt include austerity,defaults, hyperinflation,poverty and pain.  And what if ECB must print short term to get out of this death spiral they brought to themselfs?



Fri, 12/23/2011 - 05:03 | 2006617 chindit13
chindit13's picture

Two plus two equals five?

Fri, 12/23/2011 - 07:40 | 2006681 Bullwinkle Moose
Bullwinkle Moose's picture

The events that have been put into motion can not be undone. This situation that we now find ourselves in must run its course. The best we can do is to position ourselves to protect what wealth we do have. After the shakeout, there will be many good investment opportunities.

Fri, 12/23/2011 - 04:52 | 2006610 onebir
onebir's picture

Excellent article - just one thing missing to hammer home the point about gold being undervalued: a chart of the gold price vs the sum of the major central bank balance sheets (eg Fed, ECB, BOJ, BOE, SNB, PBOC, & maybe a few others).

(Ideally the gold price would be expressed as a composite of the relevant currencies...)

Fri, 12/23/2011 - 05:11 | 2006621 FunkyOldGeezer
FunkyOldGeezer's picture

in error


Fri, 12/23/2011 - 05:09 | 2006622 FunkyOldGeezer
FunkyOldGeezer's picture

Now ask yourselves this question. Who exactly has all the 'money' to fund the ever growing debt's need for credit? Surely, there isn't anything like that amount of 'free cash' slopping around, anywhere.

Sooner or later, if Gold really is the true yardstick of wealth retention, it simply has to go up. Look at the Weimar republic and the price of Gold and you'll see there was a very similar lull in its upward momentum. That lull ended with it breaking out and sky-rocketing. I've a feeling we're currently in a similar phase.


Fri, 12/23/2011 - 06:00 | 2006647 mc_LDN
mc_LDN's picture

Speaking of Gold the Telegraph has posted a personal investing update. At least its balanced. The only concerne I had was teh piece at the end recommending diversifying via a Gold ETF. That advice is criminal and they should be shot for advising it.

Fri, 12/23/2011 - 06:21 | 2006654 evolutionx
evolutionx's picture

European Central Bank commits suicide

Michael Mross on Russia Today: "Our central bank is committing suicide. On the one hand they are helping banks with billions and billions. They are buying junk bonds, billions and billions. I mean, where does this lead to? It is one of the last nails in the coffin of our central bank."

Fri, 12/23/2011 - 07:59 | 2006692 LookingWithAmazement
LookingWithAmazement's picture

Dead wrong. Not the supply of money, but the confidence in the system is leading for PMs.

Fri, 12/23/2011 - 08:06 | 2006697 YHC-FTSE
YHC-FTSE's picture

I can feel one of those "Which is worse - ECB (EUR) or FED RES (USD)?" articles coming up, and a zillion posts from jingoistic nutjobs from both sides expounding on the heavenly scent of their respective chairmen. 

Fri, 12/23/2011 - 08:08 | 2006700 Mark Wilson
Mark Wilson's picture


Anyone else having problems with Etrade Pro this morning?

Fri, 12/23/2011 - 08:49 | 2006714 Quinvarius
Quinvarius's picture

IMO, which is probably 50/50 accurate, I think teh gold carry trade was rescued with savage Western CB gold leasing.  We are eating through that.  But at these prices, in this crisis, I don't think it will take long.

Fri, 12/23/2011 - 08:52 | 2006719 billybobtx
billybobtx's picture


Sun, 01/29/2012 - 21:01 | 2108314 Heyoka Bianco
Heyoka Bianco's picture

There's just as much normalcy basis in the comments here as in any NB statement: "There's a coming collapse in the fiat system and concommitant social and economic collapse, but indivdual property rights will be respected, so I'm loading up on real state and hard assets like gold!" Yeah, that's exactly how it will go. DOn't worry, the internet will still be working too.


AS for the comparing the calibers: who are you kidding? Pick anyone you want, you won't have enough fire- or manpower to hold out for long. Populations survive, people don't.

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