“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


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Tuesday, February 24, 2015

It's all in Interest Rate Expectations

I am referring to the gold price in the above title. By that I mean, whatever market participants think as to when the Fed is going to make the first move higher, will determine whither gold goes. You tell me what interest rates will be in June, and I will tell you whether gold will be higher or lower. It really is that simple.

Take a look at the following chart. It is a 30 minute line chart in which I have removed all the markings. The two graphs shown are two totally different and separate markets. You tell me what is what?


Give up? Try looking at the same chart now with the annotations.


 
Amazing isn’t it? Gold continues to track the movements in the Ten Year Treasury note futures remarkably closely. When it goes up ( interest rates move lower) gold moves up with it. When it goes down (interest rates rise) gold goes down with it.

Notice, there is no “gold price manipulation” crap. No wild conspiracy theories; no “evil bullion bank cartel actively slamming the gold price lower”. No, it is a simple matter of what the market thinks about where interest rates are going and when.

This is why all the wild claims about gold going to the moon, doubling in value, soaring to $2000, blah, blah and more blah are the fruit of empty-headed drivellers who cannot keep their tongues from parading through the earth and defiling us all with their baseless and meritless predictions.

No one knows what interest rates are going to do right now. They are pretty much convinced that the Fed is going to hike at some point but they simply do not know when. For that matter, neither does the Fed itself, based off of what I am understanding of Ms. Yellen’s testimony and her answers in front of the Congress today. How in the hell then can anyone with a functioning conscience have the temerity to be making claims about where the gold price is going and even more hubristically, what it will actually be in a few weeks to a month or more? Do they have some special esoteric insight into the mind of Janet Yellen and the current FOMC that even those people who sit on that Committee do not possess about themselves? Of course not!

Normally I try to restrain myself from expressing my complete and utter disgust at these pestilential gold hucksters and their wild and bizarre claims but there are days, such as today, when I really have had enough of these predators and the trail of wrecked financial lives they leave in their wake.

The best we can do as mere mortals is to try to stay on our toes and constantly assess and reassess what market sentiment is from day to day. Given the state of things and the rather fickle nature of today’s modern markets, that is proving to be a task that requires an almost permanent seat in front of a computer all day long, day in and day out ( you would be amazed at how much extra time you have in a single day once you give up doing those annoying things like eating and sleeping!)

Just like the Fed itself, based right off of the words that came out of Janet Yellen’s mouth this morning, that means we have to sit and look at each piece of economic data and attempt to determine what it is telling us about the state of the US economy.

I can only tell you one thing with certainty – price movements  in gold and many other key markets that will be directly impacted by any Fed decision to hike rates or not to hike rates are going to remain incredibly volatile. Until we see a clear, unambiguous trend for the economy, one way or the other, we are going to experience days in which prices will fly or will drop with a startling rapidity as the computers react to each and every bit of data coming out.

As long as the economic data is mixed and inconclusive, we are going to see uncertainty and uncertainty ALWAYS means choppy and unpredictable markets. Just remember that the next time some pestilential gold guru opens his mouth and confidently asserts that he alone knows where gold is going and when.

9 comments:

  1. Thanks...interesting thoughts on the gold/10yrUST correlation. I remember you bringing this up previously over the past couple years and it looks to still be holding true.
    I'm not sure how much longer gold is going to hang around the big round number that $1200 represents (just like $1300 did) but it's not looking good too much longer would be my guess.

    You're right about the guess work that's still going on with the metals. They're just making it up as they go along.
    I think by this point most folks have caught onto the salespitch by now but there's always going to be some fresh meat out there.
    I suspect the recent gold rigging probe will serve as fresh fodder and "proof" that golds heading higher (much higher!) once the evil criminal monkeys are brought to justice...just like the evil currency,silver, aluminum etc probes didn't prove or accomplish a thing.

    One thing I could never understand about the evil manipulation crowd is how could the 'bugs believe that they possibly stand a chance against a supposedly evil entity or powerful govt/corporate/military power structure that has supposedly existed for decades that supposedly can control multi-billion/trillion dollar transactions or activities?
    It strikes me as hopelessly naive to think they believe they're going to outlast TPTB in the present when so many other events in the past could've/would've/should've blown the whole "manipulation" scheme apart....but that didn't happen.
    Think of Bretton Woods breaking apart or the London Gold Pool issue's in the 1960's or Nixon closing the gold window in the 70's and none of that made gold explode to the point that those gains in gold from the 70's to early 80's held or made a difference.

    Yet todays metals salesmen would have you believe (based on a grossly mistaken idea that QE was inflationary and the USD would soon be greatly weaker) that gold and silver were in short physical supply and that the London/NY vaults are empty and the Chinese or Russians will eventually come to the rescue and set gold free.
    It seems to me that a few of those highly significant 1960's/70's situations easily trump the current BS that's been trumpeted out there that as of now have proven to be mostly baseless dramatizations by the crop of current hucksters.

    You can fool some of the people some of the time but when you make stuff up and try to fool everyone all of the time then who's the real fool or clown?

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  2. Data dependant is a great excuse for not having to raise interest rates ever as the data continues to be both weak and strong, and on the weaker side lately.

    And it looks like the Fed is losing control of the markets by not raising interest rates as the asset bubbles keep getting more air blown into them every time they hear or feel that interest rates are going to be staying at 0% for longer. Makes it harder and harder to exit.

    ReplyDelete
  3. If true, this recent regime overthrow by the Houthi rebels would make the US almost complicit because they would know if Saleh was behind the scenes manufacturing this latest incident.
    The US has supported Saleh for a long time so I'm sure this rebel/Saleh maneuver is something they're well aware of if true.
    Having said that...the departure of US embassy personnel being forced out by the Houthi's (Saleh?) would seem on the surface to make no sense unless the plan is for the US & friends to come back in force to Yemen to reinstall Saleh and to fight AQAP or any Iranian influence going on there.
    Just like the ISIS situation in Iraq/Syria there seems to be a piece of the Yemen puzzle that just doesn't fit or make sense to myself at this point.
    But I suspect at some point that the main players in all the current ongoing MENA situations will be identified and the real struggle going on (SA vs. Iran regional domination) and the battle lines being drawn will become much clearer to all.
    ~☆~☆~☆~☆~☆~☆~☆~☆~
    ■Yemen ex-president amassed up to $60 billion, colluded with rebels: U.N. experts■

    Wed Feb 25, 2015 8:34am EST

    DUBAI (Reuters) - Yemeni ex-president Ali Abdullah Saleh is suspected of corruptly amassing as much as $60 billion, equivalent to Yemen's annual GDP, during his long rule, and colluding in a militia takeover last year, U.N.-appointed investigators have told the Security Council.

    The report by the world body's Panel of Experts on Yemen echoes criticism by his opponents that Saleh's rule from 1978 to 2012 was marred by graft, and that even out of office he is fomenting instability ...(cont.)
    reuters.com

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  4. My guesstimate has been the Fed raises rates after September in the new fiscal year.
    The EU's NIRP policy just about guarantees that UST demand remains robust.
    ~☆~☆~☆~☆~☆~☆~☆~☆~☆~☆~
    ■Right or Wrong on the Fed, It's All Good in Treasury Bond Market■

    by Lisa Abramowicz
    12:56 PM EST February 25, 2015

    (Bloomberg) -- It’s almost as if bond traders and economists are watching different versions of Janet Yellen’s testimony to Congress this week.

    Traders are taking the Federal Reserve chair’s comments over the past two days -- labor market market isn’t fully healed and inflation is too low -- as confirmation that the Fed is very unlikely to raise interest rates in the first half of the year. Economists including UBS Group AG’s Drew Matus and JPMorgan Chase & Co.’s Michael Feroli saw in her message reasons to reaffirm their calls for the first increase to come by June.

    But there’s a third view about how Yellen’s testimony applies to the bond market, as expressed by Jim Bianco, the founder of Bianco Research LLC in Chicago: It doesn’t really matter.

    In his alternative scenario, “everybody’s right,” Bianco said, in that the Fed could start raising its benchmark rate from near zero, like economists predict, and yields remain low, like traders seem to be anticipating.

    With almost $2 trillion of sovereign debt in Europe offering negative yields, demand for U.S. fixed-income assets is unlikely to evaporate regardless of what the Fed does. That demand -- coming in part from overseas -- will ensure that bond prices remain high and yields low...(cont.)

    bloomberg.com

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    Replies
    1. So are these guys saying this economic recovery is still so weak that just a quarter point rate hike now off of the 0% emergency level is going to cause it to fail and go back into recession?

      How much better could it be in just 6 months if it is that weak still?

      Delete
  5. A little sabre-rattling going on as the Iranian nuclear accord deadline draws near.
    ~☆~☆~☆~☆~☆~☆~☆~☆~☆~
    ■Fake US aircraft carrier the target in latest Iranian drills■
    .
    Associated Press
    By ALI AKBAR DAREINI and ADAM SCHRECK
    9 hours ago

    TEHRAN, Iran (AP) — With rockets roaring and guns blazing, more than a dozen swarming Iranian speedboats assaulted a replica of a U.S. aircraft carrier Wednesday during large-scale naval drills near the strategically vital entrance of the Persian Gulf.

    The nationally televised show of force by the country's elite Revolutionary Guard comes just weeks ahead of a deadline for Iran and world powers to forge a historic deal on the fate of the Islamic Republic's nuclear program.

    Iranian live-fire war games are not uncommon. But by simulating for the first time an attack on the ultimate symbol of American naval power, hard-liners hoped to send a message that Iran has no intention of backing down to the U.S. — whichever way talks over its contested nuclear program go.

    "American aircraft carriers are very big ammunition depots housing a lot of missiles, rockets, torpedoes and everything else," the Guard's navy chief, Adm. Ali Fadavi, said on state television. A direct hit by a missile could set off a large secondary explosion, he added.

    Fadavi last month boasted that his force is capable of sinking American aircraft carriers in the event of war. He previously called carriers easy targets and said Iran naturally wants to sink them.

    The drill, named "Great Prophet 9," was held near the Strait of Hormuz, through which about a fifth of the world's oil passes...(cont.)

    news.yahoo.com

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  6. Not sure what's going on but the EURUSD plunge going on seems to be indicative of something significant in the short term.

    Is Germany or Greece about to submarine the deal they seemed to agree upon?

    ReplyDelete
    Replies
    1. It looks like this might be what's behind the EURUSD action the past 24 hours.
      The Greek tragedy continues...
      ~☆~☆~☆~☆~☆~☆~☆~☆~☆~


      ■Gov’t raises concern over payment to IMF in March■


      The Euro Working Group discussed Greece’s imminent funding problems on Thursday amid mounting concern about how the country will meet its obligations next months.
      Earlier in the day, Minister of State for Coordinating Government Operations Alekos Flambouraris suggested that Greece might delay payment to the International Monetary Fund if it cannot find the necessary money.

      Greece is due to pay the IMF 1.6 billion euros next month but Flambouraris said that Athens might ask to delay this payment for two months.
      Greece has a total of 7.27 billion euros in obligations next month of which 4.6 billion euros is in treasury bills that are due to be rolled over. The government’s first T-bill issue will have to take place by Thursday as 1.6 billion euros has to be rolled over the next day.

      One of the possible solutions to Greece’s funding problem is for its lenders to raise the 15-billion-euro limit on T-bill issues but the European Central Bank has so far refused a Greek request for an increase.

      The German Parliament is on Friday due to approve the extension to Greece’s loan agreement, which includes another 7.2 billion euros in loans. In Thursday’s test ballot, 22 of 311 lawmakers in Chancellor Angela Merkel’s conservative bloc, comprising her Christian Democrats (CDU) and their Bavarian sister party, the CSU, opposed the extension and five abstained.

      Their Social Democrat (SPD) coalition partners, with 193 seats, voted unanimously for the extension in their test vote.

      ekathimerini.com

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    2. In doing so they have (almost) ensured that Greece (and whatever country is next) will remain an EU debt slave and subsequently by doing so they will have given up their sovereignty in the quest by Brussels (aka Germany) to federalize as much as Europe as possible.
      With so many cultural differences amongst the EU countries and with the acrimonious memories from WWII and past conflicts still fresh in the minds of the citizens of the various European countries it doesn 't seem as though debt slavery to Brussels/Germany will guarantee the federalization (financial dictatorship) of Europe anytime soon.

      Greece is the guinea pig of Brussels and the IMF in their attempts to force the first EU member to choose loan/debt slavery over the best interests or sovereignty of their own country.
      There's a reason why Brussels and the IMF are enabling Greece to dig a bigger unrepayable hole....federalization.
      ~☆~☆~☆~☆~☆~☆~☆~☆~☆~☆~
      ■Opinion: IMF Bent its Rules to Hobble Greece with Unsustainable Debt■

      By Darrell Delamaide
      Published: Feb 27, 2015 3:30 a.m. ET

      ~IMF’s credibility has been badly damaged by failed bailout~
      Reuters
      International Monetary Fund Managing Director Christine Lagarde.
      WASHINGTON (MarketWatch) — As Greece wrangles with its creditors for a more sustainable solution to its debt problems, International Monetary Fund Managing Director Christine Lagarde has been firm in insisting that the new government in Athens honor the country’s previous commitments.

      The former French finance minister threw cold water this week on the tentative accord between Greece and the European Union, warning that many of Athens’s pledges were vague and “not conveying clear assurances that the government intends to undertake the reforms envisioned.”

      And yet, it is becoming clearer by the day that the Greek bailout debacle is likely to leave a black mark on the IMF and damage its credibility.

      In a 90-minute documentary aired this week on the French-German public television station Arte, an executive director from the international lending agency said that in 2010, when the Greek bailout was initially arranged, the IMF violated its own lending rules, apparently for political reasons.

      Brazilian executive director Paulo Nogueira Batista said the agency’s rules were changed in a clandestine manner to allow the IMF to provide its share of bailout funds far beyond the normal limits allowed, and above all to violate the principle not to make any loans that have no chance of being repaid...(cont.)

      marketwatch.com

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