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Guest Post: Forget Gold—What Matters Is Copper

Tyler Durden's picture





 

Submitted by Gonzalo Lira

Forget Gold—What Matters Is Copper

People are freaking out that gold has fallen to $1,650, from its lofty highs above $1,800—they are freaking out something awful. “Gold has fallen 10%! The world is coming to an end!!!” I myself took a shellacking in gold—

—but copper is what has me worried.

Copper fell from $4.20 to $3.25—close to 25%—in about three weeks. Most of that tumble has happened in the last ten days, and what’s worrisome is that, as I write these words over the weekend, there is every indication that copper will continue its free fall come Monday.

From the numbers that I’m seeing—and from the historical fact that copper tends to fall roughly 40% from peak to trough during an American recession—there is every indication that copper could reach $2.67 in short order. And even bottom out below that—say at $2.20—before stabilizing around the $2.67 level.

But we’ll see. The price of copper is not the point of this discussion. The point of this discussion is what the price of copper means.

What it means for monetary policy.

We all know the old saying: “Copper is the only commodity with a Ph.D. in economics”, or words to the effect.

The ongoing price collapse of copper signals that the markets have collectively decided that there is going to be no resurgence of the global economies—at least not for the next 9 to 18 months. Up until now, the economic data that has been coming out over the last couple of weeks seemed to indicate that there’s going to be a double-dip—but in my mind, this fall in the price of copper confirms this notion that the general economy is going down.

And remember: Market sentiment can not only be a predictor of future economic performance, but its determinant. If today the markets feel that the economy is going to suck tomorrow, often that very sentiment is what makes the economy suck canal water.

So if copper is falling like a mo-fo—which both signals and convinces the market that the economy is gonna suck—what does this mean for monetary policy?

Prima facie, the fall in the price of copper is deflationary: Less demand means that the prices fall—meaning the dollar acquires purchasing power.

What does it mean for monetary policy that copper has fallen so low?

It means that Bernanke will carry out more “non-traditional” Federal Reserve stimulus.

Ben Bernanke is famous for being terrified of deflation—and to his particular mindset, this is a reasonable fear. More to the point, Bernanke’s deflation-phobia actually matters—because after all, he is the Chairman of the Federal Reserve. He controls U.S. monetary policy.

Deflation is supposed to be bad because it shrinks an economy. (Personally, I am more afraid of inflation than deflation: The latter is self-correcting, while the former spirals out of control and into social chaos. But that’s for some other post.)

According to the deflationary world view, falling prices oblige producers to cut back on production—which means firing workers. These fired workers—husbanding their resources during their unemployment—spend less, further contracting demand, thus putting more downward pressure on prices, forcing more producers to cut back and fire even more workers, who thus spend less—

—you get the picture: A “deflationary death spiral”, in the Deflationistas’ parlance.

This is Bernanke’s fear—and he will do anything to alleviate it. Notice: It’s not that Bernanke will do anything to alleviate deflation—he will do anything to alleviate his fear of deflation.

As copper prices continue to tumble, signaling further economic contraction, there is no question in my mind that Ben Bernanke and his Fools of the Fed will view this as evidence of looming dollar deflation.

They will do everything to stop this looming deflation. But since the “traditional” Federal Reserve tools have been used up—that is, the Fed has its rate at zero, and for all intents and purposes all of its liquidity windows open—Bernanke will have no choice but to announce some new “non-traditional” liquidity injection scheme shortly.

Thus I expect some Banana Republic money-printing scheme to be announced by the Bernankster before the end of the year—perhaps as early as this coming October. The fall in the price of copper—more than anything else—is what Benny and his Fools will be looking at, to justify this new scheme.

And my bet is, this scheme they announce will be as big—and as controversial—as QE-II.

I am giving my people at The Strategic Planning Group a detailed analysis of what has happened over the past week, and what we can expect to happen in the markets over the coming weeks. You’ll have to pay to play for that.

But insofar as my overall view of the situation is concerned, this is what I think:

Bernanke will drive a schoolbus over small children, in order to prevent his notion of deflation from coming true. This fall in the price of copper is much more relevant to his course of action as Fed Chairman than the fall in the price of gold (which was just a combination of options expiration coming up, and gold positions being sold to cover losses in other asset classes).

This dramatic fall in the price of copper signals that the markets do not believe reactivation is anywhere near eminent—not for at least 9 to 18 months.

To the traditional twin Federal Reserve mandates of price stability and full employment, Bernanke has added a third mission: That of “growing the economy”—whatever it takes, however unorthodox or reckless the measures.

Therefore, it is my estimation that very soon now—end of this year at the latest—we will have QE-infinity—and beyond!

 


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Sun, 09/25/2011 - 00:04 | Link to Comment chindit13
chindit13's picture

Though I have no interest in defending the Dismal Science, I don’t think things are quite as linear as you suggest.  Copper is something handy to illustrate my point.  Let’s say copper prices fall.  That puts a lot of mines out as business, as---all other things being equal, like labor and other input costs---the mines become uneconomic.  Because production can not be started with a light switch, there might be a point when demand outraces supply, which would result in higher prices being caused initially by lower prices.  In other words, sometimes you have to go down before you can go up.  Then human psychology comes into play, with some consumers deciding it might be a good idea to stockpile, driving prices higher still.  Sharply higher prices promote more mining at higher cost mines, which then can lead to a glut, which sends prices lower yet again.  Also, since gold is often associated with copper, gold production might fall along with copper production.  If gold demand stayed equal, the gold price would rise because copper prices fell.  There are hundreds of such inter-relationships in any economy with all sorts of reinforcing and opposing feedback loops.

My major complaint with “economic theory” is that the supply-demand curve is not consistent across all goods, and gives little or no indication of price.  For example, a commodity like copper might or might not follow a classic S-D curve, but other goods such as homes or dot.com stocks definitely do not.  I doubt gold does either.  In these goods, higher prices actually increase demand, since everybody wants to get on board the train leaving the station.  Then if some sort of crash occurs, people are gun shy, at least for a while, so whatever the S-D curve might have been before has changed.  Still later, once the pain fades and the lessons are forgotten, behavior might go back to the dot.com style bubble.  Try to model that.

Newton needed a new kind of math to correctly model or explain gravity.  That was calculus (one of history's great stories, as both he and Leibniz had the lightbulb moment at the same time, and had the time to think about it because the Plague had led to the closing of universities).  I think we need a new math for economics.

I submit that nobody knows and nobody can accurately, or precisely, model market behavior.  Bernanke’s problem---or maybe one of many of his problems---is that he thinks he can.  He sees the biggest problem as too much debt.  He probably thinks, or knows, that debt repayment is impossible unless the debt becomes meaningless through inflation.  He also fears deflation, because according to his models, deflation leads to demand destruction as people postpone purchases in order to wait for ever lower prices.  Jim Grant takes exception to deflation being a bad thing by trying to remind people that deflation is something the American consumer actively goes in search of most weekends at the mall.  There’s probably a bit of truth in both.

Bernanke also holds the belief that inflation, or expected inflation, boosts current demand because consumers want to make sure they get something now before prices are higher later on.

In the last week Bernanke might have given us the first indication that he might consider his models all wrong.  Time will tell.

Sun, 09/25/2011 - 01:34 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Demand is always material!  Why must you make everything so complicated.

Sun, 09/25/2011 - 07:45 | Link to Comment chindit13
chindit13's picture

Because everything IS complicated?

I know simple answers are more quickly satisfying, but generally they are not correct.  Flat Earth satisfied even a smart guy like Aristotle.  Walk to the edge, fall off.  Of course there turned out to be more to it.  A sixty trillion dollar world economy, with seven billion players consuming a billion different goods makes for a lot of complexity.  Anybody in a position of authority who thinks they have it all figured out risks unleashing the Law of Unintended Consequences.

Sat, 09/24/2011 - 23:16 | Link to Comment Augustus
Augustus's picture

A drop to $2 would sure put an end to the safety of bonds backed by copper.

Gold backed bonds are off the table after that 20% decline in collateral value.

What is left for the collateral component for the backing of "Real Money"?

Sat, 09/24/2011 - 23:19 | Link to Comment Diamond Jim
Diamond Jim's picture

Hedging copper back in the 80s was easy. Price would bottom at upper $0.50s and go up to upper $0.80 or so.  I'd get a call from my geologist friends at the mine telling me they were flooding the holes (buy usually in upper 50s) and they would stay that way for 6 to 12 months, pump 'em and begin operations (sell). Fun....

Sat, 09/24/2011 - 23:38 | Link to Comment BlackholeDivestment
BlackholeDivestment's picture

http://www.youtube.com/watch?v=jwan7FdbENc

...quite the conventional assessment, way below light, but of course ...that goes without saying, hence the dry sarcasm. http://www.myspace.com/urbandancesquadmusic/music/songs/the-devil-57466543

Sat, 09/24/2011 - 23:36 | Link to Comment SparkySC
SparkySC's picture

You work for JPMorgan?

 

Way to attempt to continue the panic.

 

Markets are that inefficient ?

 

LOL

Sat, 09/24/2011 - 23:41 | Link to Comment SilverDoctors
SilverDoctors's picture

GL- forget copper, what MATTERS is Silver!

And local coin shops appear to be cleaned out this weekend!!

Definitely agree though that copper is signaling a nasty rollover in the economy, and we will see QE to Infinity...AND BEYOND before Christmas.

Sun, 09/25/2011 - 00:12 | Link to Comment chindit13
chindit13's picture

Plenty of silver over here (I'm in Asia).  Little or no activity in the shops yesterday (Saturday).

I'm not sure I want to ride the same wave as the US retail buyer.  They might all be right, but I think I'll wait and see.

Sat, 09/24/2011 - 23:45 | Link to Comment BlackholeDivestment
BlackholeDivestment's picture

...George Tenet, ''pay attention to the plumbing''. Lol.

Sat, 09/24/2011 - 23:46 | Link to Comment HeNateMe
HeNateMe's picture

Wouldn't deflation reverse purchasing power positions?  Hear me out.  We all know that those that benefit first (and most) during inflation are those that get the money first. From what I see, and correct me if I am wrong.  Money is pulled to the banks for usage.  So banks benefit most re purchasing power.  The last users get the shittiest purchasing power.

Now during a delfation that idea should reverse.  The last users ("The People") should benefit most re purchasing power and the banks (and the Fed) last.  But how?  Because the people hold on to their money.  It's obvious that banks don't want you to save.  Fuck them and there .045% APR business money market account.   But a 25.99% interest rate on a credit card.  Banks should take the same interest rate they get for loaning me money as I do loaning them mine.  Pay me 25.99% on my savings account and I will save like a mother fucker.

There should be a flat interest rate for loaning money.  No matter who, no matter where.  A flat interest rate is the standard.  Even between father and son.  Where is the contradiction in that?  Contracts re interest rate issues (i.e. loans) would cease to exist.

I think I'm rambling, but let me leave with with this,

HeNateMe

Sat, 09/24/2011 - 23:56 | Link to Comment Sequitur
Sequitur's picture

Gold will get hammered this week. Period. I would not be long GLD, it is going to eat capital.

Sun, 09/25/2011 - 00:01 | Link to Comment HeNateMe
HeNateMe's picture

Gold Eats Capital!  Story at 11.

Sun, 09/25/2011 - 00:16 | Link to Comment Sequitur
Sequitur's picture

GLD isn't gold. GLD is shit paper used by hedge funds to shortrape dopes.

Sun, 09/25/2011 - 00:34 | Link to Comment HeNateMe
HeNateMe's picture

I actually, I completely agree with you that GLD is paper.  GLD isn't gold.  I totally agree.  Same with SLV and silver.  And equity is only paper as well.

 

Sun, 09/25/2011 - 00:10 | Link to Comment natty light
Sun, 09/25/2011 - 00:11 | Link to Comment Silver Bully
Silver Bully's picture

Waitaminute. Just because the CME pushed copper down doesn't mean it (and the rest of the commodities) stay down 'due to a slowing economy'. Instead, like silver, it is the continued pressure of the higher margins that will artificially prevent copper recovering as quickly as it ought to. Silver STILL doesn't have its mojo back from the margin hammering back in May. It didn't ride up alongside gold's recent push towards 1900 nearly as much as it should have. Why? Because the CME's hikes took the air out of the room (with the threat of more hikes if that doesn't work). There's no mystery here. This feeds into the manipulated picture by the central planners to 'jump into our magick treasury box and all will be rainbows and unicorns!'

Funk dat.

There's just one problem. These hikes reduce the market to the strongest of the strong hands. Hint: it ain't JPMorgan. The unintended consequences of these margin hikes is sucking more of the actual commodities and PM's out of the market FASTER due to cheaper prices. The CME is cutting their hands off to save their dicks, thereby ensuring their demise. Meanwhile, China has setup PAGE as an alternative to the Comex and LBMA crime syndicates. Unlike Gonzalo, my only worry is we're trading one set of central planning bastards (lead by the Fed) for ANOTHER set of central planning bastards (China), as far as the PM exchanges are concerned. When these 2 economic giants start an economic pushing match, look out.

Sun, 09/25/2011 - 00:40 | Link to Comment nhr215
nhr215's picture

Its unfortumate ZeroHedge gives a platform Gonzalo Lira, a certified hack with no economic, financial or other relevant background to perform this kind of analysis. Lovely of him to plug his "strategic planning group" website. This is like the blind leading the blind off a cliff while simulaneously trying to profit from such cliff diving.

Oh and by the way Mr. Lira, regarding your comment of an addition to the dual mandate, let me clue you into something:  for full-employment = economic growth. They are the same thing. Anyone with even a macroeconomics 101 cours under their belt understands the Phillips curve and the trade-off between inflation and employment that is the very basis for the Reserve's dual mandate. You do not. You are a complete hack. I love ZeroHedge but find it depressing that such poor quality control is done on their sources. It honestly makes me question much of the posts on this website now. I will be sure to scrutinize the authors more closely in the future.

Not to say that Bernanke won't try QE3. But there is nothing in this post that adds to that equation whatsoever. And it completely misses the tremendous political pressure being applied to Bernanke to not expand monterary stimulus further. Clearly politics is not one of Mr. Gonzalo's strongpoints either. Perhaps he should stick to blogging, self-promotion, and marketing and leave his arm-chair economic analysis to people that actually know something.

 

Sun, 09/25/2011 - 00:41 | Link to Comment HeNateMe
HeNateMe's picture

Would this information be important?  It's dated 9/24/11.  I am still new and not able to discern everything yet:

FACTBOX-Silver margin changes by CME since 2009 Sat Sep 24, 2011 12:28am GMT   Print | Single Page [-] Text [+]

 

Sept 23 (Reuters) - CME Group Inc raised margins on its 5,000-ounce silver futures by 15.6 pct on Friday, the first since May. In late April and early May margins were lifted five five times by a total of about 84 percent. CME, whose COMEX contracts are the world's leading precious metal futures, raised margins to $24,975 per contract from $21,600 effective after the close of business on Monday, September 26. Silver futures suffered their biggest one-day decline since 1987 on Friday, falling 18 percent. Silver futures settled at $30.05 an ounce as investors shed positions fearing silver had grown overly speculative. Following are some details of the increase in margins: * Margins are deposits paid by investors in futures markets to cover the risk of default by that investor. * Exchanges typically raise margins to mitigate risks as price volatility in the market increases. * However, margins can also be used as a tool to curb speculative trading activity by reducing the number of positions a party can hold by leveraging a particular amount of money.Following are the percentage changes in the COMEX 5000 silver futures (Tier 1) maintenance margins since 2009 (in U.S. dollars per contract). EFFECTIVE DATE INITIAL MAINTENANCE PERCENTAGE CHANGE 26 Sep 2011 $24,975 $18,500 15.6 09 May 2011 $21,600 $16,000 14.3 05 May 2011 $18,900 $14,000 16.7 03 May 2011 $16,200 $12,000 11.6 29 April 2011 $14,513 $10,750 13.2 26 April 2011 $12,825 $9,500 9.2 25 March 2011 $11,745 $8,700 5.5 21 Jan. 2011 $11,138 $8,250 6.5 17 Dec. 2010 $10,463 $7,750 6.9 16 Nov. 2010 $9,788 $7,250 11.5 11 Nov. 2010 $8,775 $6,500 30.0 01 Oct. 2010 $6,750 $5,000 0.0 07 June 2010 $6,750 $5,000 17.7 30 April 2010 $5,738 $4,250 -15.0 02 March 2010 $6,750 $5,000 0.0 12 Feb. 2010 $6,750 $5,000 11.1 15 Dec. 2009 $6,075 $4,500 12.5 21 Aug. 2009 $5,400 $4,000 -33.3 26 June 2009 $8,100 $6,000 -14.3 28 May 2009 $9,450 $7,000 16.7 22 Jan. 2009 $8,100 $6,000 -6.3 08 Jan. 2009 $8,640 $6,400 --

 

Sun, 09/25/2011 - 00:42 | Link to Comment mess nonster
mess nonster's picture

It's all relaltive. Wage earners get screwed by inflation, because wages won't keep up with prices. On the other hand, deflation means they get fired, lose their homes and starve to death in the street.

For the self-employed, inflation means they can raise their own wages/prices until they b egin to lose customers, while with deflation, they can't lower prices/wages fast enough to keep any customers at all.

Inflation means a commodities broker has a dificult time keepig up with the contract spreads, whhile deflation means he's ruined, neck-deep in pork bellies that he has to dump in the river, all the while surrrouded by starving babies.

Sun, 09/25/2011 - 01:15 | Link to Comment UP Forester
UP Forester's picture

FWIW, even though it's overall a bad sign, at least it's not falling alone.  Sn prices are now under $9/lb, and Pb is under $1/lb.

When I lived in N. Idaho, the mines there were mostly Galena-type mines, with a mix of Ag, Sn and Pb.  Will they dig faster with lower prices?  Probably not.  Will there be more demand for the more industrial metals with the lower prices?  Who knows.  But if there isn't, and my gut tells me there won't with manufacturing "tanking," then the domestically dug Ag might just tighten up.

I think this will push the price of physical silver up, and, hopefully the price of the other precious (brass, lead and copper jacket) back down to keep the former safe.

Sun, 09/25/2011 - 01:24 | Link to Comment Mr_Wonderful
Mr_Wonderful's picture

I never understood how the myth of hyperinflation could be kept alive in the face of an ever rising tsunami of technological advances, stupendous productivity increases, incredible oversupply of about everything (including credit) and an absolutely endless supply of dirt cheap labor in Asia. These are extremely strong deflationary forces.

Of course in order to absorb the mountains of merchandise from Asia in an orderly manner in the last 15-20 years or so, wages and purchasing power in the west would have to have risen dramatically. They didn´t, so those mountains were absorbed through debt. An exponential rise in debt. That j-curve is now understandably starting to crash as all exponential curves do eventually. It´s a necessary correction but being fought tooth and nail by policymakers. I guess after all else fails The Bernank will be throwing money from black helicopters. The only other option seems to be to kill off a third of the population to counter the debt contraction, deflation, shrinking economy and increasing unemployment of the next 10-15 years. This would also solve at least part of the social security shortfall, which is contingent upon people being around to receive those unfunded entitlements.

 

 

Sun, 09/25/2011 - 01:45 | Link to Comment HeNateMe
HeNateMe's picture

I see the logic of your arguments.  I do.  But I don't agree with your premise.  I think there are more than two ways out of the future.  The future is infinite, not (either A or B and not not either A or B).  How about: A.B,C,D,E,F,A<R<FQWJUQROJCKNAKCK ORUW).

Is someone fucking with my phraseology?

Sun, 09/25/2011 - 02:35 | Link to Comment Mr_Wonderful
Mr_Wonderful's picture

Well, there´s this huge overhang of debt vs. economic output.

By 2009 total credit market debt ratio to GDP had ballooned to 380%.

It has since dropped to 350%. The govt. has in the meantime added massive debt so the private sector is unwinding its debt quite aggressively. The credit bubble is bursting.

Of course to get a real picture of the debt situation we have to include entitlement underfunding, the US government is short some $55 trillion dollars there and that´s a conservative estimation from their own annual report. So, the entitlement shortfall is some 4 times larger than economic output and it is increasing by nearly 5% per year.  Thus for the entitlement shortfall to remain in proportion to economic growth, the GDP would have to increase by 20% per year. Which obviously isn´t possible. The likely outcome is that congress will curtail those entitlements or even abolish them to get rid of this impossible debt load. Unfortunately this wouldn´t get rid of the problem because the burden of meeting the liabilities would simply revert to citizens who would be forced to curtail other spending to make up for these shortfalls in their retirement and health care accounts. Either way, whether the payments are made or reneged upon, they represent a drain on future spending/purchasing power.

So, there aren´t many options at this point when you have the ratio of debt to GDP at 750% (including unfunded entitlement obligations). Eventually it takes almost all economic output just to service such debt load but of course the system will have a huge correction long before that could conceivably happen.

 

Sun, 09/25/2011 - 02:43 | Link to Comment linrom
linrom's picture

I don't follow your logic? How is de-population going to solve debt problems? Who is going to pay it off? If the ECB kills off 1/3 of the Greek population, what does it do to Greeks' ability to repay debt that is outstanding? Outstanding debt divided by fewer Greeks means that each Greek would bear a larger share than previously!

Further, your logic is even more convoluted when you suggest that solving future debt problems is possible by killing off future retirees. How noble and farsighted a solution. Congratulations! Now how are you going to solve TODAYS debt problems?

Sun, 09/25/2011 - 02:56 | Link to Comment Mr_Wonderful
Mr_Wonderful's picture

They are totally unsolveable.

The real ratio of debt to economic output is at least 750% if you add the unfunded contingent entitlement obligations. Those entitlements are contingent upon people being around to receive them, obviously. This mess is growing by 5% per year and heading into a demographic brick wall to boot. The baby boomers who are starting to retire in the millions are a third more numerous than the xgeners who are supposed to support them. And the latter are mired in debt and out of jobs as it is.

It´s difficult to point to solutions when you´re ten feet away from going off a cliff at 100 mph, it really is.

 

Sun, 09/25/2011 - 02:44 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Or they raise wages in China, either by litterally raising them or strengthening the Yuan.

Sun, 09/25/2011 - 01:38 | Link to Comment HeNateMe
HeNateMe's picture

According to sources, progress has been made at the G20 meeting in Washington, where global leaders piled pressure on the eurozone to fix its problems before plunging the world back into recession.

Let me get this straight, you told Europe to fix their problem and..."Progress has been made"?

And I love how they beat the drum for recession.  Save us G.I. Ben!

Sun, 09/25/2011 - 02:09 | Link to Comment linrom
linrom's picture

Did anyone actually look at long term price chart of copper? The price of copper is not an economic indicator of global economy, its a good indicator of commodity driven speculation.

What did the price of copper predict during the 1970s-1990s---absolutely nothing! What did it predict during its parabolic rise during 2002-2011 period, intertwined with several intermediate collapses--nothing!

The price of copper is driven by coke and opium addicted monkeys with their eyeballs glued to computer screens with piles of free speculative money.

A blast from the past.

— 1996: Sumitomo Corp., a 300-year old Japanese metals trader, discovers that its star copper trader, Yasuo Hamanaka, amassed $2.6 billion in losses in unauthorized trades over a decade.

Sumitomo lost at least $1.8 billion as a result of what it said were unauthorized trades over a 10-year period by Hamanaka, who was later charged on allegations that he manipulated the price of the metal, which then lost a third of its value on world markets in less than two months.

The affair was a major scandal which is at times compared in magnitude to the Silver Thursday scandal, involving the Hunt family's attempt to corner the world's silver markets.

 

http://www.futuresbuzz.com/hg.bmp

 

 

 

Sun, 09/25/2011 - 04:46 | Link to Comment magpie
magpie's picture

$ 2,6 Billion in 1996 hm

Sun, 09/25/2011 - 02:12 | Link to Comment caerus
caerus's picture

He was the sort of person who stood on mountaintops during thunderstorms in wet copper armour shouting "All the Gods are bastards."
Terry Pratchett

they are bastards...by the way

Sun, 09/25/2011 - 02:56 | Link to Comment Kina
Kina's picture

So if the EU creates another bunch trillions of Euro out of thinish air what does that do to the USD? And what would BB do to soften said USD?

I am assuming that if they print the US has to print. It will be printer wars and the constant expansion of all asset prices in diminshed fiats.

Sun, 09/25/2011 - 03:19 | Link to Comment Mr_Wonderful
Mr_Wonderful's picture

The FED is at the end of its tether. It´s leveraged 60-1 against its capital. If it prints, it has to correspondingly create debt and everybody and their dog are up to their ears in debt. So, demand for debt is falling. Interest rates are at zero or heading there. Cash is being hoarded in anticipation of falling prices.

The Euro will undoubtedly crash, the dollar will rocket up, importing deflation into the U.S. heavily import-dependent economy. This should be beneficial at least in the intermediate term for small business, consumers and jobs since it takes down economic input cost from foodstuffs and raw materials thus increasing small business profits and the purchasing power of consumers. Also, deflation in effect acts as a hidden tax cut over the line.

Of course the other side of the coin would be total collapse of the stock market and commodities. Gold and silver would probably go below extraction costs for example.

Sun, 09/25/2011 - 04:01 | Link to Comment Kina
Kina's picture

I thought BB had a pathological hatred of deflation, and his first order of business is protecting the assets of the banks.

 

I think he has to print to take some air out of the USD should the EU go the trillions printing route.

 

Will he do the head fake before the print.

 

As for Gold and Silver, in other fiats it isn't so bad if the USD goes from strength to stength.  Gold in Euro may continue to break records and create its own parobolic demand forcing it up in USD in any case should the plan be to print a few trillion Euro. People will be fearing a loss in purchasing power.

 

 

Sun, 09/25/2011 - 03:20 | Link to Comment caerus
caerus's picture

are we not the authors of our own destiny?

are we not our own end?

i know who you are...

 

 

Sun, 09/25/2011 - 03:53 | Link to Comment MsCreant
MsCreant's picture

are we not our own begining?

i know who you are... 

i keep forgetting who i am...

that is why we are writing this story

Sun, 09/25/2011 - 03:34 | Link to Comment Mr_Wonderful
Mr_Wonderful's picture

Europe does have room to print.

The problem is that these are democratic countries with coalition governments unlike the U.S. two-part one-party system. So it´s a question of dialogue, compromise, public opposition, falling governments etc. You don´t have those problems in the U.S. one-party system.

Sun, 09/25/2011 - 03:36 | Link to Comment caerus
caerus's picture

im going to go ahead and buy a chicken sandwitch...you guys are awesome....

Sun, 09/25/2011 - 03:38 | Link to Comment caerus
caerus's picture

ugh

Sun, 09/25/2011 - 03:50 | Link to Comment slackrabbit
slackrabbit's picture

I have shorted copper - because Chinese real estate developers are currently in the process of correcting - like Jim Chanos I don’t trust some of the figures coming out of china and because this party was over in 2008

http://www.zerohedge.com/news/jim-chanos-debunks-myth-china-worlds-white-knight

 and cotton because it was at a 150 year high.....last time is was that high was the US civil war - so reversion to mean is inevitable.

As always I had hedged in gold/silver case Bernake or King starts printing….as for counter party risk …I have a bottle of whiskey....worth a punt

Sun, 09/25/2011 - 04:39 | Link to Comment Die Weiße Rose
Die Weiße Rose's picture

this crisis was caused by "easy monetary policy" ninja loans and too much "cheap" Debt !

Commodity prices and Asset prices around the world are hugely leveraged and inflated

and "investors" (read:Hedge-funds) took out highly leveraged positions in Commodities and Assets of advanced and emerging Economies like China (Property Market)

Cheap Money in USD created hugely leveraged and inflated Commodity Bubbles and Asset Bubbles around the world, but mostly in China,depending on Europe and the USA for their export Economy,which is now stalling.

Nothing can halt this global slow-down. The world-economy is deleveraging and the Commodity bubbles and Asset bubbles

are deflating allover the world.

Too much cheap USD fuelled Debt and bad ninja loans (no Income, no Jobs, no Assets) are the ongoing  problem. The solution can never be "more cheap USD Debt".

Asset prices and Commodity prices will deflate and deleverage lower, until the fundamental health in world-markets is restored and prices have returned to reflect true and fair value. (without HFT fraud or creative LBO accounting, priced to some hopium fantasia)

This is going to be the Great Depression the World has to have in order to restore the universal fundamental value of everything, Dr. Copper and even Gold.

wr;)

Sun, 09/25/2011 - 04:48 | Link to Comment thetrader
thetrader's picture

Don't forget commodities carry large leverage. With the latest year's rally, many "speculators" have been "sucked in" and without proper risk management now feel the pain of leverage. Moves in Gold, Copper, Silver of 20% in a week has nothing to do with the Economy falling off the cliff this week, or the past weeks. High volatility has to do with risk management, or a lack of it, not the Economy. I agree the Economy looks very bad, and yes the metals could probably go down further. When metals surged, nobody spoke of the Economy growing proportionately. So, make a distinction between risk management and the Economy.

Sun, 09/25/2011 - 05:04 | Link to Comment Mr_Wonderful
Mr_Wonderful's picture

Market activity resembles warfare so trying to entrap the maximum number (amounts) of the opposition in the most vulnerable positions and then destroying them, would seem a pretty obvious approach.

Sun, 09/25/2011 - 04:56 | Link to Comment Kina
Kina's picture

The end game has only just started. Huge amount of uncertainty from here on and nobody can know through all the permutations just where it all ends up.

 

There seems to be no way out, no good answers that make everything well without a long period of massive pain. So given two options the TPBT will look after their masters. The final aswer to all this will be the answer that best protects the power and assets of the banks. Well that is what they will try to achieve.

 

 

Sun, 09/25/2011 - 05:22 | Link to Comment falak pema
falak pema's picture

A decision was made two weeks ago in the rarified circles of Uber Europe : ECB/MErkozy. 

The number one priority of EU now is to RECAPITALISE BANKS. THIS MAY ALSO LEAD TO MORE CENTRAL INTERVENTIONIST POLICIES IN EU LIKE EUROBONDS (still not clear if Germany will accept this).This means, as Gonzalo Lira so eloquently points out in his Copper spiel, that EU will now collectively push towards deflation and Debt reduction, NOT QE type measures to kick start the world economy as O'bammy wishes from his election perspective.

That was the desperate message to EU from Geithner in Poland : Please QE along with us. Merkel said NO! So the swap lines of USA/FED were momentarily TIGHTENED. Along with turning the screws on Euro banks. Now the UK, faithful ally of USA, have officially announced they are buying into QE at BofE. SO the Oligarchic fight goes on, between EU bearishness and Anglo bullishness.

But the EU front now is going down the Merkel imposed route : 50% haircuts for banks in Greece, Controlled default and an anti contagion safety net by ECB/EFSF whose contours will hopefully become clear by November 3 at Cannes G20 meeting, if shit doen't hit the fans in between and spoil the EU apple-cart. 

This is bad news for FED/Bernanke. It sends the USD up, making carry trades difficult. And it makes Asset levitation on WS well nigh impossible.

We are heading for a prolonged recession in 2012/2013. THIS IS NOW OFFICIAL AND INEVITABLE. O'BAMMY MUST NOW TAKE NOTE, AS HIS FED STRATEGY HAS NO MORE SILVER BULLETS.

Sun, 09/25/2011 - 05:28 | Link to Comment Kina
Kina's picture

Now we sit and wait and watch all the players in Europe, Japan, China and the USD. Will be an interesting few weeks.

 

Watch the schools of fish swim back and forth between various sharks.

Sun, 09/25/2011 - 05:54 | Link to Comment UP Forester
UP Forester's picture

Yep.  All we can do is watch the ass-clowns on CNBS runnin' up the newest rumor flags, dancin' around "like their hair's on fire and their ass was catchin',"

Any fish in the pond swimmin' to-and-fro can't evade the squid....

Sun, 09/25/2011 - 06:24 | Link to Comment Xaqaria
Xaqaria's picture

Well I'm in a bad spot, I've got pennies for days.

 

Wait shit, Pennies are only 2.5% copper. How is zinc doing these days?

Sun, 09/25/2011 - 08:13 | Link to Comment PulauHantu29
PulauHantu29's picture

China and India encourage their people to buy gold while Austria is now restricting gold purchases:

http://www.commodityonline.com/news/Austria-restricts-gold-purchase-by-i...

I feel for the Goldbugs.....I am not sure what a "copperbug" is called.

Sun, 09/25/2011 - 09:41 | Link to Comment WakeyWakey
WakeyWakey's picture

Looks like the bullion dealers agree, not taking orders on SLV or GLD

 

http://www.bullionbypost.co.uk/

Sun, 09/25/2011 - 10:39 | Link to Comment Mr_Wonderful
Mr_Wonderful's picture

Look out below.

 

Open Interest on SPX October Put Options a whopping 900,000 contracts.

http://www.marketwatch.com/investing/index/spx/options

Sun, 09/25/2011 - 10:42 | Link to Comment thunderchief
thunderchief's picture

Copper is a wonderful metal.  There is nothing like a Copper roof, and how beautiful a Copper Oxidized roof looks.  I thought about putting a metal roof on my house, but if copper drops like a waxed brick, as silver has, I think I will put a copper roof on my house. 

So with any luck, if things go as they are, I can live in a copper roofed house and become a Silver smith, as everyone seems to think silver is worth a twenty dollar bill.  We will see.

Sun, 09/25/2011 - 11:14 | Link to Comment Golden Pompoms
Golden Pompoms's picture

We got a buy gold!!  C'mon guys!  The sky is falling, that's why we need to pump up gold.  Governmetn keeps printing money and that's why gold prices should go up!!!  C'mon stick to the motto!! Let's push the price of gold to $13,000 once by 2013!!! YEAH... let's go, let's go!!! 

Sun, 09/25/2011 - 11:25 | Link to Comment rosiescenario
rosiescenario's picture

Copper's drop is going to create an even bigger problem within the Chinese banking system. How big....only time will tell. One thing for sure, with copper headed south, the banks there will not be accepting it as collateral so there goes one of the major drivers of its demand in recent years.

Sun, 09/25/2011 - 12:09 | Link to Comment ItsDanger
ItsDanger's picture

SO many here are so fixated on gold you miss so many short opportunities.  If you feel there is a recession coming, you short copper.  Much better trade than other BS moves people make.

Sun, 09/25/2011 - 15:07 | Link to Comment Random_Robert
Random_Robert's picture

The question is:

Are the hedgies going to continue dumping GLD and SLV this week while the Asians keep using the price weakness to remove hard bullion from the vaults in the west?

Look at the volumes on last week's smackdown:

Bullion futures open interest fell on the Comex and LBMA.

Mining share prices cratered on somewhat normal volume.

GLD/SLV volume both went INSANE as the hedgies bailed out, and the fund sponsors vacuume up every share to cover their own ridiculous short positions.

Buy Physical- it's on sale.

Sun, 09/25/2011 - 15:21 | Link to Comment TheObsoleteMan
TheObsoleteMan's picture

Here is something else to consider in relation to copper's plunge: Unless prices stablize, and turn back upwards SOON, The Chinese state bank is in REAL danger. Here is why: They have warehoused tons upon tons of copper, and used it as collateral to underwrite ALLOT of loans. By now I suspect the underlying asset {copper} to be far less in value as opposed to the loans written aganist it. This is a VERY BAD situation. Yes, europe is definatley a situation to watch, but far too little attention is being paid on this matter.

Sun, 09/25/2011 - 17:43 | Link to Comment SILVERGEDDON
SILVERGEDDON's picture

Paper sucks, you Wall Street fucks! I'll see you vampires in the sun, with my loaded silver gun. Yer goin' down in flames, from Lower Manhattan to the Thames. Your paper is I know not where, I'd rather shit my underwear! For, be there bull, or be there bear, silver is the suit I wear! (With gratitude, and apologies to Dr. Seuss.)

Sun, 09/25/2011 - 19:53 | Link to Comment DosZap
DosZap's picture

So,who's got the most GOLD??.  10,000 Tonnes more than USA.

According to a JPMorgan report, India is home to more than 18,000 tonnes of gold (about 11 per cent of the global stock), worth about $1.1 trillion (versus an equity market cap of $1.2 trillion). Gold holdings are also more evenly distributed across Indian households as compared to stocks.

Sun, 09/25/2011 - 21:44 | Link to Comment Fate
Fate's picture

Hokey government promises and fiat currencies are no match for a silver dollar in your pocket, kid.

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