Failure to come up with some sort of market pleasing action or agreement on the part of these finance ministers will send the equity markets on a very sharp trip lower out of disappointment. On the other hand, any agreement reached will put a firm bid beneath those and engender buying in the Euro, at least for the short term.
The latter will see the Dollar move lower and should bring on the risk trades pushing both gold and silver higher. It might be enough to take gold out of this coiling pattern to the upside. It will need to at least better the $1765 level and hold above it to give us a shot at a test of $1800.
Keep in mind that no matter what they come up with, it is NOT GOING TO SOLVE the longer term, deep-seated structural issues. Conjuring up a mechanism/(s) to shore up the debt of nations who are hopelessly mired into a socialistic style system that has addicted a good portion of their citizenry to endless government handouts merely puts the proverbial bandaid on a growing cancer. When push comes to shove, loaning money to nations who have bankrupted themselves by this sort of lunacy solves nothing. It may and probably will buy a bit of extra time but there is no way out of this except by purging the debt, something no politician or monetary authority seems inclined to do. They can devalue the currency but buyers of the debt will understand that game and will demand higher interest rates to compensate them for currency risk, a guarantee of slower economic growth as it will act as both a drag on the economy and raise the cost of servicing any new debt obligations.
Dan, I guess we are all waiting for the Head of MF Global to tell us he did not understand how "hypothecation" was utilized by his firm. I guess Kyle Bass theory is looking much more solid and Gold in your hands is much better than the fiat dollars in your account. If the system gets halted through these exchanges, then all bets are off. A great article on Zero Hedge today explaing the Hypothecation. And it used to be commercial banks lent money and in exchange for the interest, more money created. Now?? Commercial Banks are using unbelievable leverage through their investment arms and are not lending money at all. They are repoing the money from Investors accounts. Wow, full circle with a potential end to all ends.
ReplyDeleteI get it. International Banks allowed to take the least prohibitive market to trade in (England's system). They bet their own as well as customers' money (#1 completely illegal in US) through the English system. When their bets lose in this case, and customer money is swooped off the table by counterparty (Banks taking collateral). Because the regulators were inept? or unable to prosecute beyond sovereign lines? I say whoever has the money(JPM?) has to give it back or not operate in the US anymore. Secondly, Corzine is the head. If the head of a company does not know how the system operates, yet bets in the system-it is NO DEFENCE. Either the head of an operation knows the risks, abides by US law, and has to develop policies and procedures to keep this from happening or the head of the operation goes to jail for the company's shortcomings in developing their policies for protecting investors money. A travesty where real people lose faith in our system. I am one of those. Corzine=Jail. Period.
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