We had strong downgrades all across Europe and a total jettisoning of risk trades in Tuesday's session with the result that we had a sinking Euro and a surging Dollar. Overnight we learn that now China promises to join the money rain parade and pour its wealth into bailing out Europe to protect its export markets.
What do we get as a result of this? A complete reversal of the risk aversion trades with all the money that came pouring out of the markets Tuesday now turning around and flooding right back in again.
Up goes gold and silver after both sold off on Tuesday and up goes the Euro and down goes the US Dollar. Presto chango; wave that magic wand and all the woes of the financial world have just disappeared.
The promise of more bond purchases by China of European debt has sent the S&P 500 futures through very significant chart resistance at the 1350 in the Asian trading session. It looks like the drunken binge continues with no fears, no worries in sight now that China has become the lender of last resort. Apparently what the Central Banks could not do, China has.
I wonder how history is going to record all of this madness. I just hope we all live long enough to be able to tell what it was like living through it and watching it unfold day by day and week by week. No one from the future will likely otherwise believe that a generation of humanity was this ignorant. On the other hand, maybe it is those of us who actually believe DEBT is generally something to be avoided unless it is carefully managed and respected who are the fools here and those who just shrug it off as nothing to be concerned about are the truly wise among us.
Up is now down; down is now up; light is now darkness and darkness is now light; bitter is now sweet and sweet is now bitter. Welcome to the brave new world in which prosperity can be created by piling up massive loads of debt without the slightest bit of concern for how that debt will ever be repaid.
Tuesday, February 14, 2012
Gold Shares continue to lose ground against gold itself
The gold mining shares, as evidenced by the HUI, continue to lose ground against the price of gold bullion itself. They are approaching the three year low in this ratio that was made 3 weeks ago. One would think that they would find some buying support soon for valuation reasons.
The hedge funds continue to ply that ratio spread trade which they will do until they can no longer make any profits off of it. Maybe we are seeing a bit of a delayed reaction to news that the Obama budget contains a hefty 5% royalty tax on their revenues. That budget has zero chance of passing in its current form but it could be that the mere mention of such a thing has gotten some owners of these shares nervous especially if those risk aversion trades come back in vogue.
Once again it comes back to the desire on the part of investors to gain LEVERAGED exposure to the gold price. If they can do this by using the ETF and not have to concern themselves with risks of a political nature such as what is being attempted by the current Administration, they why bother buying these things at all is the thinking that is currently in vogue among the larger part of the speculative community at this point.
The mining shares are also now seriously underperforming the broader stock market continuing a pattern that has emerged since last summer.
Some of the readers wrote to expres their desire to see a tax of this sort hit the mining sector. My only response to that is very simple - a royalty tax comes right off the bottom line of any company involved in mining here in the US. The lower the net profits of a company, the more it impacts their share price. Be careful what you wish for if you hold these shares in your portfolio and take the side of the Administration that this is a good and necessary tax. That is your portfolio and your wealth that is going to take the hit. If you are willing to lose your money over it - fine and dandy - but then do not complain and bitch when you see your portfolio going nowhere or actually moving in the wrong direction.
Hedge funds are not going to acquire mining company shares out of the supposed "goodness" of their hearts. They will only buy them if they think that they can make a profit on them and that necessitates continued strong and rising profits from these companies. Anything that might impact that will be part of the equation in calculating whether or not they meet these criteria.
The hedge funds continue to ply that ratio spread trade which they will do until they can no longer make any profits off of it. Maybe we are seeing a bit of a delayed reaction to news that the Obama budget contains a hefty 5% royalty tax on their revenues. That budget has zero chance of passing in its current form but it could be that the mere mention of such a thing has gotten some owners of these shares nervous especially if those risk aversion trades come back in vogue.
Once again it comes back to the desire on the part of investors to gain LEVERAGED exposure to the gold price. If they can do this by using the ETF and not have to concern themselves with risks of a political nature such as what is being attempted by the current Administration, they why bother buying these things at all is the thinking that is currently in vogue among the larger part of the speculative community at this point.
The mining shares are also now seriously underperforming the broader stock market continuing a pattern that has emerged since last summer.
Some of the readers wrote to expres their desire to see a tax of this sort hit the mining sector. My only response to that is very simple - a royalty tax comes right off the bottom line of any company involved in mining here in the US. The lower the net profits of a company, the more it impacts their share price. Be careful what you wish for if you hold these shares in your portfolio and take the side of the Administration that this is a good and necessary tax. That is your portfolio and your wealth that is going to take the hit. If you are willing to lose your money over it - fine and dandy - but then do not complain and bitch when you see your portfolio going nowhere or actually moving in the wrong direction.
Hedge funds are not going to acquire mining company shares out of the supposed "goodness" of their hearts. They will only buy them if they think that they can make a profit on them and that necessitates continued strong and rising profits from these companies. Anything that might impact that will be part of the equation in calculating whether or not they meet these criteria.
In Related matters...
This story illustrates something so eggregious that I felt compelled to post it so as to let the readers know what the fallout from this meddling Administration's policies is across this country.
We apparently now have Kathleen Sebelius's Department of Health and Human Services feeling that they have the right to POLICE your childrens' lunch boxes.
Take a look at the following story and tell me that we are not losing our freedoms in this nation. This is what Obamacare has wrought and what we can expect to see more of should Americans be foolish enough to empower this group of control freaks for another 4 years come this November.
The next thing you know these people will be telling us when we can wipe our rear ends and with what kind of paper.
Make no mistake whatsoever about it - Obamacare has nothing to do with Health Care - it is all about government control over your life. From its trampling on the First Admendment rights of Catholics here in the US to this "policing of lunch boxes", we are witnessing only a small foretaste of what is going to happen in this country if they are not defeated at the ballot box.
Carolina Journal News Reports
We apparently now have Kathleen Sebelius's Department of Health and Human Services feeling that they have the right to POLICE your childrens' lunch boxes.
Take a look at the following story and tell me that we are not losing our freedoms in this nation. This is what Obamacare has wrought and what we can expect to see more of should Americans be foolish enough to empower this group of control freaks for another 4 years come this November.
The next thing you know these people will be telling us when we can wipe our rear ends and with what kind of paper.
Make no mistake whatsoever about it - Obamacare has nothing to do with Health Care - it is all about government control over your life. From its trampling on the First Admendment rights of Catholics here in the US to this "policing of lunch boxes", we are witnessing only a small foretaste of what is going to happen in this country if they are not defeated at the ballot box.
Carolina Journal News Reports
Preschooler’s Homemade Lunch Replaced with Cafeteria “Nuggets”
State agent inspects sack lunches, forces preschoolers to purchase cafeteria food instead
Feb. 14th, 2012
RAEFORD — A preschooler at West Hoke Elementary School ate three chicken nuggets for lunch Jan. 30 because a state employee told her the lunch her mother packed was not nutritious.
The girl’s turkey and cheese sandwich, banana, potato chips, and apple juice did not meet U.S. Department of Agriculture guidelines, according to the interpretation of the agent who was inspecting all lunch boxes in her More at Four classroom that day.
http://www.carolinajournal.com/exclusives/display_exclusive.html?id=8762 The girl’s turkey and cheese sandwich, banana, potato chips, and apple juice did not meet U.S. Department of Agriculture guidelines, according to the interpretation of the agent who was inspecting all lunch boxes in her More at Four classroom that day.
Gold moving higher in Yen terms; strong in Euro terms
Some of the friends of gold are no doubt frustrated by its inability to breach stubborn chart resistance near the $1750 level in US Dollar terms. Bullion bank opposition near this line is absorbing bids and has thus far resulted in some light long liquidation among the more short-term oriented bulls.
However, as stated many, many times on this site, gold is not ONLY A DOLLAR PRICED STORY - as much as its detractors would love to make it fade from the minds of men, it is ultimately a currency - a currency which is immune from Central Bank and monetary officials' debauchery efforts.
Overnight we learned that the Bank of Japan announced additional liquidity measures in another attempt to derail the money flows that have been coming the way of the Yen during periods of safe haven trades. The stronger yen is becoming a serious political issue there in Japan and exporters continue to put pressure on the monetary authorities to do something about it. That is exactly what they did as they attempt to meet the Federal Reserve's dovishness with that of their own.
Look at what has been happening to gold when priced in terms of the Yen as a result of all this. As the yen sinks in value on the foreign exchange market the gold price in terms of that currency is steadily moving higher. While certainly not as impressive as the Euro gold chart shown beneath it, one can see that the price action today is thus far signaling that BOJ efforts to debauch their currency might just be working. It is certainly losing value against gold.
Keep in mind that gold strength, in terms of these other major currencies, is going to prevent any deep sell offs in the US Dollar priced gold. As long as this continues, dip buyers will keep showing up on any bouts of price weakness here in the US. It is this occurence that is the Achilles' heel of the bullion banks - they can absorb paper bids here in the US but attempting to prevent gold from rising in terms of the other major currencies is simply out of their ability. World wide liquidity efforts by the Central Banks of the West have consequences that cannot be avoided, no matter how many games are played on the Comex Exchange.
However, as stated many, many times on this site, gold is not ONLY A DOLLAR PRICED STORY - as much as its detractors would love to make it fade from the minds of men, it is ultimately a currency - a currency which is immune from Central Bank and monetary officials' debauchery efforts.
Overnight we learned that the Bank of Japan announced additional liquidity measures in another attempt to derail the money flows that have been coming the way of the Yen during periods of safe haven trades. The stronger yen is becoming a serious political issue there in Japan and exporters continue to put pressure on the monetary authorities to do something about it. That is exactly what they did as they attempt to meet the Federal Reserve's dovishness with that of their own.
Look at what has been happening to gold when priced in terms of the Yen as a result of all this. As the yen sinks in value on the foreign exchange market the gold price in terms of that currency is steadily moving higher. While certainly not as impressive as the Euro gold chart shown beneath it, one can see that the price action today is thus far signaling that BOJ efforts to debauch their currency might just be working. It is certainly losing value against gold.
Keep in mind that gold strength, in terms of these other major currencies, is going to prevent any deep sell offs in the US Dollar priced gold. As long as this continues, dip buyers will keep showing up on any bouts of price weakness here in the US. It is this occurence that is the Achilles' heel of the bullion banks - they can absorb paper bids here in the US but attempting to prevent gold from rising in terms of the other major currencies is simply out of their ability. World wide liquidity efforts by the Central Banks of the West have consequences that cannot be avoided, no matter how many games are played on the Comex Exchange.
