The MasterCharts: 2010
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Friday, December 17, 2010

Market timing - European Financial Risk Breaks Out- Sell signal?

 Market timing - European Financial Risk Breaks Out- Sell signal?

CONCLUSION: As our mark Steele points out below, European corporate financial risk is breaking out...this was a SELL signal last spring. Yet this time so far, there has been a definite lack of contagion. The elastic band is being tested.....

Relative Strength Filter
December 17, 2010
Research Comment
Mark Steele
(416) 359-4641
Assoc: Tiberiu Stoichita/Rahul Muralidhar
European Financial Risk Breaks Out
CLICK HERE for a printer friendly version of this report including research disclosures.

Figure 1: European Financial (Markit) and European Prime Broker (our .PrimeEU) Financial Default Risk; FTSE Global Banks

Source: BMO Capital Markets, Bloomberg, Thomson, Markit

· This morning, European corporate financial default risk breaks to the upside – Figure 1.

o This was a sell signal in the spring.

o This was a sell signal in November.

o This is a caution signal now.

§ What is different?

· If you carve out the too-interconnected-to-fail European prime brokers (our .PrimeEU index), and overlay this on the European Financial default risk chart, you see a definite lack of contagion.

o The core is solid.

o The caution, of course, comes as we assume that if overall European financial default risk continues to rise, then there will be a moment when the elastic band connecting the two (Figure 1 top) will force the too-interconnected-to-fail institutions into the fray.

§ Today, we get off with just a caution, but a big caution.

Sunday, December 12, 2010

Gold Market Forecasting and the Magnetic Power of the $2,298 Target Price

Gold Market Forecasting and the Magnetic Power of the $2,298 Target Price-- Posted Sunday, 12 December 2010
| Source:

By David Knox Barker

The Long Wave Dynamics approach to Fibonacci drill-down price grids in any market index such as the S&P 500 and European S&P 100 generates extraordinary actionable market intelligence for investors and traders. Creation of the drill-down Fibonacci grid approach to market analysis is the result of decades of market cycle research and studying the market timing of a number of cycle masters. The goal was a formula timing plan for buying low and selling high based on cycles that works for both investors and traders.

Fibonacci Dynamic Web methods demonstrate how every Fibonacci price grid is driven by three ranges, 1) Solitude 0%-38.2%, 2) Normal 38.2%-61.8%, and 3) the Frenzy range of 61.8%-100% of any Fibonacci price grid. Prices often turn exactly on the golden and inverse golden targets in the Fibonacci price grids.

Working with major indexes such as the S&P 500, the 1982 intraday low and the 2007 intraday high provide the perfect Level 1 grid range to begin the Fibonacci grid drill-down process. Other major markets do not offer as much history, but they provide enough for a solid Level 1 price grid. However, the gold market has been making all time highs on a regular basis, so a clear Level 1 price high is not available.

This is where things get interesting in terms of very recent gold market price action. In order to generate a Level 1 price high to begin the Fibonacci grid drill-down process, you have to use a past major move as a key move in a full grid move that remains in the future. Yes, what I am suggesting is that you must look into the future and see an important top in the price of gold.

Tuesday, November 30, 2010

Your One-Stop Guide To Frontrunning Monday's Double POMO | zero hedge

Your One-Stop Guide To Frontrunning Monday's Double POMO

Thursday, November 25, 2010

infographic: bailout mechanisms in Europe

As for those who still may be confused by how the various bailout mechanisms in Europe operate, we present to you this useful infographic by the Guardian.

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Sunday, October 31, 2010

No Gold Or Silver Bubble Says Sprott's John Embry

No Gold Or Silver Bubble Says Sprott's John Embry
Source: zero hedge
 26 October 2010 

On one hand, one has professional stock bubble top-tickers (of the variety that would benefit from some error-checking)-cum-amateur precious metal pundits claiming that the gold bubble is unmistakable. On the other, there are those who have made hundreds of millions of dollars for their investors actually investing in precious metals, such as in this case Sprott's John Embry, who states that there is no bubble in either gold or silver. "Jim Rogers, who is one of the world's leading authorities on commodities, dealt with the bubble issue recently by recounting an interesting anecdote. While addressing a group of high-end money managers, he inquired as to how many of them held gold or silver in their accounts, and remarkably, 75% replied they had never owned either precious metal. When gold is trading at several multiples of the current price at some point in the future, you can be assured that every single person at a similar gathering would be long and then discussion of a bubble might be legitimate. In my considered, opinion we are many years and thousands of dollars away in price from that debate." Whom does one believe? That's obviously rhetorical. Amusingly, Embry takes a stab at the Financial Times, which he dubs a conduit for the establishment: "The FT has been speaking much less disparagingly about gold recently. The paper consistently denigrated gold and its change in tone might be instructive." Of course, a variety of second-rate media outlets are more than happy to step in and fill the "goldbug" bashing void in the FT's absence.

Full recent thoughts from Embry (pdf):


Embry Oct22

Read more…

Wednesday, October 27, 2010

do the Credit markets paint bullish picture for Equity markets?

BMO seems to think so…


Figure 1: S&P Global 1200 and Sovereign Default Risk          

Description: cid:image003.jpg@01CB74E0.40F9A530

Figure 2:  S&P 500 and North American Inv. Grade CDS

Description: cid:image004.jpg@01CB74E0.40F9A530


Figure 3: Credit Default Swap Section of Equity Screening By.



Figure 4:  Bank of America Equity/CDS Overlay


Saturday, October 09, 2010

Tuesday, October 05, 2010

Financial Times: The global implications of QE2

October 04 2010 2:11 PM GMT
The global implications of QE2
By Gavyn Davies
Gavyn Davies on the global effects of another round of quantitative easing from the Federal Reserve

Read the full article at:

Sent from my iPad

Friday, September 17, 2010

CNBC Market Blah, Blah ..Friday Look Ahead: Tech a Focus for Stocks Friday, as Gold Dazzles Investors

Friday Look Ahead: Tech a Focus for Stocks Friday, as Gold Dazzles Investors

Published: Thursday, 16 Sep 2010 | 9:10 PM E
By: Patti Domm
CNBC Executive Editor
Some good news from the tech sector could be a positive for stocks Friday.
Outside the New York Stock Exchange in lower Manhattan.
Photo: Oliver Quillia for
Outside the New York Stock Exchange in lower Manhattan.

Both Oracle and Research in Motion reported strong earnings after Thursday's bell. Separately, Texas Instruments boosted its $0.12 dividend by a penny and said it would buy back another $7.5 billion shares. All three stocks were higher in after-hours trading.
Stocks Friday morning could feel the effect of the quadruple expiration of futures and options. Traders expect the expiration to be low key at the open, and if anything, the impact should be slightly positive.
CPI, at 8:30 a.m., is expected to show a 0.3 percent increase in August consumer prices. Consumer sentiment is expected to improve slightly to a reading of 70, from 68.9 last month, but economists say the strong performance of the stock market this month could push that number a bit higher. August's sentiment reading was the second lowest of the year. Consumer sentiment is released at 9:55 a.m.
Stocks drifted on both sides of the unchanged mark Thursday. The Dow ended up 22 at 10,594, and the S&P 500 was off less than a half point at 1124.  The dollar weakened against the euro, and dollar/yen was barely changed after the Bank of Japan intervened to curb the yen's rise Wednesday.
"This intervention might have higher chances of succeeding, assuming we continue to see relatively acceptable U.S. economic data. That's the critical thing," said Boris Schlossberg of GFT Forex. " long as the idea of double dip keeps receding, Treasury yields should stabilize and go back up and that will be critical to dollar/yen."
On the other hand, if we see the 10-year yield move to 2.5 percent, or dip below 2.5 percent, I don't think any amount of money will stem the (dollar) decline," he said.
Barry Knapp, chief equities portfolio strategist at Barclay's, said the initial stock market reaction after a big intervention is often a short-term decline. "For the first couple of days, the market goes down a little bit..the first reaction is to look at the dollar," he said.
The view is "if the dollar is going up, that's bad for earnings, so sell it. Dollar's going down, that's good. That's a very simplistic approach. I don't think it's right at all," he said. "If you look back at 2003, when the Japanese were intervening dramatically, the initial reaction was that the stock market sold off, and then it regained its footing."
Knapp said the intervention at that time was about $360 billion, and he estimated this round could total $250 billion. The BOJ was reported to have bought more than $20 billion Wednesday.
"If somebody puts $250 billion into the markets, event though that money won't be buying riskier assets, it can trigger an effect," he said.
The impact on Treasurys could also be noticeable, he said. Traders have been speculating the Japanese will park their dollar holdings in shorter duration Treasurys. "Initially the Treasury curve steepens, but then that tends to drive investors who were in 2s and 5s to extend out the curve and it starts to flatten. Then it triggers a whole position rebalancing."
All that Glitters
Gold continued to dazzle investors Thursday, scoring its second record settlement of the week. Investors are betting it could try to break the $1,300 level, maybe even as early as next week depending on the outcome of the Fed's meeting Tuesday.  Gold Thursday rose about a half percent to settle at $1273.80.
Gold has faced some high-profile criticism this week, including from investor George Soros who called it a bubble. "If you think about a world where every major country is trying to find a way to devalue its currency, gold looks pretty good in that environment. Personally I think the dollar is going down more. There's lots of reasons why gold will continue to rise. I don't know if I'd buy it, but I know I wouldn't short it," Knapp said.

Sunday, September 05, 2010

A 7 Million Increase In US Population Results In A Labor Force... Decline? Why The US Has Really Lost 11.2 Million Jobs This Recession

A 7 Million Increase In US Population Results In A Labor Force... Decline? Why The US Has Really Lost 11.2 Million Jobs This Recession

[1] Growth and Labor Force_1.jpg
[2] Growth and Labor Force 2.jpg

A 7 Million Increase In US Population Results In A Labor Force... Decline? Why The US Has Really Lost 11.2 Million Jobs This Recession

Wednesday, September 01, 2010

Demonised ‘algos’ push the surge in FX trading -

Oh, poor "Demonized Algos" !!!

Demonised ‘algos’ push the surge in FX trading

By Jennifer Hughes, Senior Markets Correspondent
Published: September 1 2010 00:04 | Last updated: September 1 2010 00:04
Since the infamous stock market “flash crash” of May 6, high-frequency, or algorithmic, trading has been unwillingly dragged into the political and regulatory limelight.
forex-trading-graphicSo far, however, attention has focused on the role of these high-speed traders in the equity market. Outside the glare of that publicity, it is less well known that on May 7, FX trading volumes reached records, straining the plumbing of these markets.
Some participants argue these strains were partially caused by algorithmic, or algo, traders.
Exactly how much of this can be attributed to algo trading is unclear. However, there is no question that high-frequency traders are a fast-increasing force in FX markets, which is sparking a fierce debate as to their value to the market.
On Tuesday, the Bank for International Settlements reported that average daily turnover in the FX market has jumped 20 per cent in the past three years to $4,000bn a day. Its survey was taken in April, so missed the May spike, which related to the eurozone sovereign debt crisis.
The BIS-reported gains were led by a near 50 per cent leap in spot trading – deals for immediate delivery – to $1,500bn a day. This jump was powered by increased activity from “other financial institutions”, a group that includes hedge funds, pension funds, some banks, mutual funds, insurance companies and central banks. This will also include algos.
While all categories of “other” could have increased their trading, it is likely a significant proportion was driven by algo traders, who favour the deep, liquid spot markets and particularly currency pairs such as eurodollar and dollar-yen, which between them account for 42 per cent of all currency trading.
The question for the FX market is whether high-frequency dealers improve the market by adding liquidity, or whether they are instead merely price takers who contribute little.
“Algos have been demonised, but they’re an important part of the growth story,” says David Rutter chief executive of Icap Electronic Broking, which runs EBS, the main FX interbank trading platform. “What we’ve found is that they add pressure at each price point so that instead of getting big price gaps on shocking news, trade is more orderly.
“With FX, there are a lot of other flows such as global trade, so there is good underlying liquidity that the algos can enhance.”
Algos initially appeared in FX markets almost a decade ago, attracted by the deep liquidity and increasing use of electronic trading. They were generally welcomed, particularly by banks looking to build their prime brokerage businesses. However many banks soon grew disenchanted when they found the fast-moving shops were profiting from banks’ own slow systems by exploiting brief, tiny price differences between rival platforms.
Some banks went as far as ejecting offenders from their platforms but banks’ views have since become more nuanced. They have generally reached an accommodation, helped by technological improvements which make it easier to monitor client dealings and offer client-specific prices.
“The facts are that algos have made the markets more efficient and have helped ensure there’s one virtual price,” says Jeff Feig, global head of G10 FX at Citigroup. “They do cause banks to be smarter and we’ve had to work harder to be more efficient, but that’s ultimately to the advantage of the end user.
“I think that to some extent, algos have pushed banks and the result has been enhanced transparency and increased liquidity.”
Algos mean many different things in the FX market. While high-frequency traders are the best known – typified by one senior banker as “five smart guys in a room in New Jersey,” – banks are increasingly adept at developing their own algorithms to make their internal FX deals more efficient. These “internalisation” trades too will have provided a boost to the BIS numbers.
Most players say algos are now a fact of life in currency markets.
Unlike the equity market, which is split into hundreds of stocks, they believe the FX world’s focus on a relatively small number of currency pairs means it would be far harder for a single group of participants to move the market significantly, intentionally or otherwise, as some watchers fear happened during the “flash crash”.
“Also trading can happen anywhere there’s an electronic execution system and a volatile market,” says Alan Bozian a former FX banker and now chief executive of CLS Bank, the FX settlement system. “The question is, which markets adapt well and I don’t think it’s necessarily the stock market.”
FX markets have proved generally good at adapting. Systems such as CLS, introduced years before the financial crisis, have helped minimise settlement risk and since May, participants have been working again to improve their processing systems to cope with increased volume.
Significantly, for a market that is very much built around a hub of big banks, the BIS report showed that, for the first time, interaction of the main banks with “other” financial institutions overtook trading between themselves.
This could be a pointer to the market of the future, where banks are likely to remain the hub, but as much for their trade processing abilities as for their liquidity.
This would allow the winners to build profitable volume without taking on huge trading risks – suiting the current regulatory mood.
“The banks want to continue being the price providers, but they’re getting much more interested in the infrastructure and improving that,” says Mr Bozian. This evolution is likely to apply to high-frequency trading too.
Mr Rutter believes algos are only in their “late teens” in terms of development. “The early algo trading was about super-fast dealing and chasing inefficiencies. That’s largely gone,” he says.
“Now its about math and science being thrown at the market – there’s a rich pool of data and I think we’ll see algos evolve so its not just about milliseconds, but about longer-term predictive math.”
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms / Currencies - Demonised ‘algos’ push the surge in FX trading

-- The MasterFeeds

Tuesday, August 31, 2010

IRS Hiring Special Agents for Criminal Investigation Division - Finance Career Management, Finance Career News -

IRS Hiring Special Agents for Criminal Investigation Division - Finance Career Management, Finance Career News

Come one, come all: The IRS is hiring for one of its prime divisions.
The agency expects to get $5.1 million to spend on hiring for its Criminal Investigation Division -- though an agency spokesman could not say exactly how many the IRS is looking to hire.
A recently-released report from the Treasury Inspector General for Tax Administration (TIGTA) that assesses the Division's performance states that special agent staffing has increased 4.1% from last year, from 2,617 to 2,725. But the difference of 108 positions represents the net between 312 newly hired agents and the loss of 204 experienced agents. Overall, the number of field special agents has decreased 10.2% since 2004.
This new hiring comes in the wake of last year's push for 800 new employees to scour the world in search of American tax evaders.
The turnover has resulted in fewer case completions than in previous years. Last year, TIGTA expressed concerns that the Division would fail to "reduce the pipeline inventory." That worry was justified. Even though the Division reduced its completion goal from 4,000 to 3,900, it still came up 52 investigations short in 2009.
As the recent kerfuffle between U.S. and Swiss authorities over the transfer of tax data indicates, the premium placed on routing out international tax schemes has reached an all-time high, and the IRS needs agents around the world to act as gumshoes. According to the report, "the international initiative will require increased hiring and include a broader range of cases and sharply increased presence in other countries."
While an IRS spokesman could not give a full outline of the hiring initiative, he did highlight some of the necessary qualifications that can be found on the IRS' website:

-- Younger than 37, unless you've served in a federal law enforcement position before.
-- Prime physical condition (you'll be tested on it).
-- Gun-shooting experience.
If you're comfortable with all of the above and you like the sound of Special Agent [Your Name Here], you may want to consider applying.

IRS Hiring Special Agents for Criminal Investigation Division - Finance Career Management, Finance Career News - "IRS Hiring Special Agents for Criminal Investigation Division
By Julie Steinberg"

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Monday, August 30, 2010

MasterTech: RIM = RIP ? Research in Motion Continues Its Downwa...


Sounds like TAPS in the background....

Between the pressure on the corporate side of the business from governments who want access to all the data passing through the blackberries in their countries, and the real risk of migration by consumers to the iPhone and Android OS, the future doesn't look too bright RIM...

Below are charts.  The whole story can be seen on The MasterTech Blog or directly on
As Research in Motion Continues Its Inevitable Downward Descent In Both Equity Value and Market Share, Investors Should Tweak Their Assumptions Accordingly
Research in Motion's recent equity share decline stems not only from market share loss, but from the apparent lack of a clear cut and believable plan to stem that market share loss.

Research in Motion, is still currently the market leader in terms of share, but is losing both demonstrably and rapidly in new users. As a matter of fact, if the recent historical trends persist, this is the last quarter that RIM will be able to claim the top of the market title as Android looks well situated to claim that crown.

As can be seen from this chart, Android is just about there. Apple will probably show better numbers in Q3 with additional evidence of iPhone 4 adoption as well.
So, although RIM is looking quite cheap now, it is quite possible for it to look much cheaper. The question is how does this market share loss factor into its equity valuation.

MasterTech: Research in Motion Continues Its Inevitable Downward Descent In Both Equity Value and Market Share

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Wednesday, August 25, 2010

Richard Russell's Daily Letter

August 24, 2010 - "I place economy among the first and most important virtues and public debt as the great danger to be feared. To preserve our independence, we must not let our leaders load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude." Thomas Jefferson. 

Throw a tennis ball up in the air, and it will lose upward momentum as it rises. At some point upside momentum will completely fade, and the ball will stand still in mid-air. After standing still for a brief moment, the ball will head back toward earth.

Somehow, I get the same feeling about the stock market. The market gained initial upside momentum as it surged up from its July low. By early August the market had lost upward momentum. For seven days the Dow moved sideways as if suspended in midair. On August 11, the market suddenly plunged 265 Dow points, and in so doing it fell out of its sideway trading range. From there, the Dow whipped back and forth, and by August 19, the Dow had fallen bearishly below both its 59-day and 200-day moving averages.

The daily chart below shows us what the Dow looks like now. Note that RSI is heading down, and MACD has turned negative. At the same time, the Dow is situated below its 50-day moving average, and the 50-day MA, in turn, is below its (red) 200-day MA. Finally, note that the Dow has assumed the form of a head-and-shoulders top that has now broken down. In all, a classic set of bearish relationships. 

I'm including a P&F chart of the Dow below. Note the latest red column of X's which just plunged below the 10150 box and below the rising blue trendline. According to this P&F chart, we received a "sell signal" this morning when the Dow broke below the preceding column of 0s and below it rising blue trendline. The P&F "projection" is that this break should take the Dow down to the 9750 box.

Incidentally, there is no shortage of "distribution days." The latest score for the last two weeks is -- 6 for the S&P 500, 5 for the Dow, 5 for the NASDAQ and 5 for the NYSE Composite. That's far too many, and it implies heavy institutional selling.
Yesterday, I wrote about the Treasury bonds. Every "smart" trader and investor has rushed into Treasury bonds as the ultimate save-haven area. I believe Treasury bonds and high-grade corporate bonds are in a bubble. There are just too many believers in bonds as the ultimate safe place to be. 

When everybody piles onto one side of the ship, the ship lists. And just as quickly, everybody rushes to the other side of the ship. That's where I think we are with bonds. 

The weekly chart below follows the 30-year T-bond. RSI tells us that the bond is overbought. The full stochastics at the bottom of the chart confirms that the bond is overbought. And the blue histograms are slanting downwards towards zero. All in all, I don't like the looks of the bonds. Any hint of rising interest rates could send the bond market off the edge of the popularity cliff. 

Gold -- I took today's stock market sell-off as an indication that business will be rotten in the months ahead. Rotten business will put pressure on the Fed to print, print, print. Wide open quantitative easing will put pressure on the dollar, and this, in turn, will put UPWARD pressure on gold. And gold may have started to discount that situation today.

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Monday, August 23, 2010

Speculators Hike Net-Long Positions In GoldKitco News

Speculators Hike Net-Long Positions In Gold

23 August 2010, 11:27 a.m.
By Debbie Carlson
Of Kitco News
Chicago -- (Kitco News) -- Investor interest in gold jumped as prices held and advanced over $1,200 an ounce as safe-haven buying resumed.
According to data from the U.S. Commodity Futures Trading Commission, the weekly commitment of traders showed speculators added to long gold futures positions in the week ending Aug. 17.
Looking at the disaggregated futures and options combined data, the managed-money accounts added 16,233 longs are now net-long 182,276 contracts, the largest net-long for them since the week of July 13, when their net-long positions totaled 187,077. The peak for the year 2010 to date was 230,422 on May 18.
Similarly, in the legacy futures and options report, funds added 19, 557 contracts to make them net-long 226,964.
Commercials and swap dealers in the disaggregated reports added to their net-shorts, with the producer category increasing shorts by 10,271 contracts to make them net-short 172,129. Swap dealers hiked their short contracts by 11,878 to be net-short 100,750 contracts. Commercials in the legacy futures and options report raised 25,854 short contracts and are now net-short 272,879.
During the timeframe the report covers, Aug. 10 to Aug. 17, gold prices on the Comex division of the New York Mercantile Exchange rallied $30 an ounce for the December contract. A trigger for the rally was holding over $1,200 an ounce. Prices started at $1,198, which was the settlement on Aug. 10 and settled at $1,228.30 on Aug. 17, and prices continued to rise that week.
“This shows that financial investors have been a major force in this recent rally of gold prices. In the reporting week up to last Tuesday, prices advanced by 4%,” said Commerzbank in a research report on Monday.
Barclays Capital said in a research report Monday, using the legacy futures-only data, that the rise in fund longs was the largest one week rise on a net basis since late April.
The rally came on disappointing economic news, which spurred safe-haven buying of gold, as market participants worry about a double-dip recession. Traders also note, though, that volumes during the reporting period were light because of summer holidays.
In addition to investment buying, Commerzbank said physical interest could support prices, noting Tuesday starts the festival season in India, when gold is traditionally given as gifts. They also cited central bank buying, with Russia increasing its gold reserves by more than 15 tons in July to just under 725 tons, according to its central bank. “Although the rise in holdings is likely to have come from the country’s own production, this absent supply will contribute to a tighter gold market,” Commerzbank said.

In other precious metals data, there was little significant change in speculative holdings for silver, platinum and palladium.
Managed-money accounts in silver added 29 long contracts, but cut 144 short contracts and are now net-long 28,429 contracts. Swap dealers are net-short 1,916 contracts, having added 692 shorts and cut 117 longs. Producers are net-short 52,773 contracts.
In platinum, speculators trimmed slightly their net-longs by 299 contracts and added 97 shorts and are now net-long 16,103 contracts. Swap dealers cut shorts by 649 contracts and added 151 longs, making them net-short 6,599 contracts. Producers are net-short 12,804 contracts.
The managed-money accounts added modestly to net-longs in palladium, increasing longs by 326 contracts to be net-long 10,230 contracts. Producers remain net-short 9,802 contracts in palladium and swap dealers are net-short 4,400 contracts.
The data for copper shows managed-money accounts added to long positions, but increased their short positions by a greater amount. These accounts added 1,025 long contracts and 2,603 short positions, remaining net-long 19,180 contracts. Swap dealers and commercials remain net-short, at 44,550 and 56,432 contracts, respectively.
During the time period, most-active September copper rose 2.6 cents a pound, so the swift price drop copper suffered toward the end of last week over global economic health was not included. From Tuesday’s settlement to Friday’s settlement, September copper prices fell 4.75 cents to $3.2910.
Commerzbank said because of this: “net long positions have probably continued to fall since then. The still relatively high positions also hide a risk of new price corrections should market sentiment deteriorate further.”
By Debbie Carlson, of Kitco News;; Allen Sykora contributed to this story.

Kitco News
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Saturday, August 21, 2010

Gold: The Enemy of Currencies

Gold: The Enemy of Currencies
Last week saw gold prices rise despite deflationary fears.
Taking a look at the chart below we can see the gold price in US dollars has traded in a narrow range since May. This is despite the dollar declining for much of that time, see chart further below. (Click to enlarge)

 We noted last week that we were going to keep an eye on the Fed Open Market Committee meeting in case they decided to increase the money supply even further. But they didn’t.

The Federal Open Market Committee failed to commit to anything... they didn’t say they would resort to more quantitative easing... they didn’t say they wouldn’t. Instead they’re pausing for breath.

The inflation, deflation debate continues 
As the deflationary, inflationary debate continues to be waged between financial heavyweights we stand on the side and watch. We’ve always believed the act of quantitative easing is inflationary; It inflates the money supply. We also think the governments only way out, of this huge debt burden it has imposed upon itself, is to inflate the debt. If you make the value of your debt less you have less to pay back, but it’s a juggling act. Inflate too much and you run the risk of hyperinflation, something that, the Germans will tell you, doesn’t bode well for an economy.

US Trade Deficit
What’s the next move for gold? We have to wait and see what happens around the globe to find that out. Certainly, its course is no longer dictated by the movement of the dollar as much as it once was. Will this relationship resurface? Probably, but when it does it will most likely be when the dollar makes a significant move, triggering panic in the dollar or gold.

Which is more likely – a panic or strength in the dollar?
Last week Bloomberg reported that the US trade deficit has swelled to an incredible figure:
“The U.S. trade deficit widened by $7.9 billion in June, the most since record-keeping began in 1992, to $49.9 billion, a report from the Commerce Department showed. Exports posted the biggest decline since April 2009.

“Investors should prepare for “major structural changes” as the global economy shifts to slower growth, Mohamed A. El- Erian, chief executive officer at Pacific Investment Management Co. said yesterday in a radio interview on “Bloomberg Surveillance” with Tom Keene.”

This news reverberated around the markets.

A quick look at the VIX index shows us that fear has reentered the market... again. At the far right of the graph you can see the index rises sharply which signifies a growing fear of volatility in the markets.

With a stuttering economy and growing tension between the US and China, the trade balance could play a huge role in a dollar devaluation. But in order for the dollar to drop further people will have to lose faith in its safe haven status. Which means an alternative currency will need to take its place. The problem with this scenario is that there aren’t too many other candidates for the role as a global reserve currency. And whilst that is the case gold can continue to take center stage.

Will things get better?
In the grand scheme of things the debt, from Dubai to Greece has just been shuffled around. The run up in the stock markets suggests stability but investors are cautious. They’re wondering if this is another ‘suckers rally’. And they’re right to be cautious. If you play with fire... well you know that old saying. In other words it doesn’t end well.
Can things get better? That depends on what governments do.

More money printing can only add to the attractiveness of gold. But gold is the enemy of currencies. As Alan Greenspan once noted, to control the dollar you have to control the gold price.

The fight for governments around the world is one which is traded in blows against the gold price. And should they win the price of gold may very well settle back to lower prices until supported by a strong level of jewelry demand. But this is dependent on currencies being kept under control. Both the US and the UK have not ruled out further money printing, and with each new wave of money the original currency is worth less and less.

It all sounds too reactionary to us. There doesn’t seem to be a grand plan. Maybe there cannot be as the markets lead themselves. But whatever the case, none of the actions by those in power have any finiteness about them. There’s no plan and no control.

Disclosure: No positions
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Friday, August 20, 2010

A Brief History of the Dollar

A Brief History of the Dollar

Calafia Beach Pundit submits:

Here, in a nutshell, is my version of the history of the dollar's history, with a focus on its major turning points. As a point of reference, I'm using the Fed's Real Broad Dollar Index (chart above), which measures the dollar's value against a large basket of trade-weighted currencies, all adjusted for changes in relative inflation. It's arguably the best measure of the dollar's true value against other currencies. I've marked 6 key turning points in the dollar, and I explain here the key events occurring around the time of each turning point. I also opine on the future of the dollar.

A: Most measures of the dollar's value only go back to 1973. That's unfortunate, since the modern history of the dollar begins in August 1971, when Nixon ended the dollar's convertibility into gold. Prior to that point, the dollar had been fixed to gold at $35/oz. since 1934, and most of the world's currencies were pegged in some fashion to the dollar. Nixon's decision to abandon the gold standard was the catalyst for what would eventually prove to be a major devaluation of the dollar. The underlying cause of the dollar's collapse, however, was the Fed's decision to ease monetary policy in support of Great Society spending programs. The Fed's easy money policy started in the mid-1960s, and it was reflected in a steadily increasing outflow of gold. The Fed was holding interest rates at artificially low levels, and this was undermining the world's confidence in the dollar. Central banks began demanding gold in exchange for their dollar holdings, until Nixon's decision put an end to that. That decision effectively relieved the Fed of the need to raise interest rates significantly, which in turn exposed the fact that there was a huge excess supply of dollars in the world.

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A Brief History of the Dollar

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If This Were A Stock....

If This Were A Stock....

By Guy M. Lerner
See figure 1 a weekly price chart. The 40 week moving average (i.e, red line) is
heading higher, and prices are trading above key pivot points, which are areas of
support (buying) and resistance (selling). In essence, this is a "beautiful" chart with
lots of momentum (i.e., note the breakout gaps). If this were a stock, the analysts
and pundits would be all over the "breakout" ---blah, blah, blah.
Figure 1. Price Chart/ weekly
But figure 1 isn't a stock, it is the yield on the 30 year Treasury, and the chart has
been turned upside down. What I hear and read is this move in Treasury bonds isn't
sustainable. A sub 3% yield isn't possible, but isn't that what "they" said about a sub 4%
yield? Which happens to be in the rear view mirror.
People still don't believe, and they are not interpreting the significance of the price
action correctly. Maybe if this were a stock people would be wowed by the price
action. But they aren't. For the record, figure 2 is a weekly chart of the yield on the
30 year Treasury bond (symbol: $TYX.X). Are the low yields of late 2008 the next

If This Were A Stock....

Check it out on The MasterCharts