Debt Ceiling: Raised But Not Called.

July 27, 2011

Both parties have plans that include raising the debt ceiling. The Democrats want to raise it beyond the 2012 Election. Meanwhile across the aisle the Republicans want to raise it until the beginning of next year. All of this is the one point of agreement. RAISE THE DEBT CEILING!

This is like a high-stakes poker game with Trillions of Dollars and the AAA rating of the US on the line.  Each side has already come the decision to raise, not call, the Debt Ceiling. They are now choosing by how much thus insuring the length of time before we come to this mess again. This is not about fixing the financial problems swirling around this country it is about making statement for future votes.

I’ll make it easy, there are no good guys in this debate, except maybe Ron Paul who has not wavered on his stance in 25 plus years. The Dems want to put this issue off until after the election to say they resolved the issue and come out the winner. The GOP want to start this up again at the beginning of 2012 so they can say the President is incapable of leading thus making their candidate look like the obvious choice to solve the Debt Crisis.

The real losers? The average Joe on the street watching the Economy & Dollar sink faster than the Times Square Ball on New Years Eve. The winners: those who have heeded the warnings and own a Tangible Asset Portfolio at a conservative 10% to aggressive 20% of their total net-worth. If you haven’t started, today is the day to look in your financial mirror and  make the needed changes.

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Forbes: Gold Hits New High As Equities Tank On Debt Ceiling Stalemate

July 25, 2011

WASHINGTON, DC - APRIL 07: U.S. Speaker of the House Rep. John Boehner (R-OH) (4th L) and Senate Majority Leader Sen. Harry Reid (D-NV) (3rd R) leave after they made statements to members of the press April 7, 2011 at the White House in Washington, DC. Both Boehner and Reid had a meeting with President Barack Obama earlier to discuss the budget proposal for FY2012, the third meeting in a few days. (Photo by Alex Wong/Getty Images)

Moral Hazard
By Agustino Fontevecchia
Jul. 25 2011 – 10:41 am

U.S. equities continued to suffer from the political debate over the debt ceiling, with all three major indices opening in the red on Monday as President Obama and John Boehner, Republican and Speaker of the House, failed to break a stale mate.  Greece suffered another downgrade at the hands of Moody’s, sending the price of gold to new nominal highs.

Stocks opened lower as investors anticipated a weak session on political weakness.  By 10:23 AM in New York, all three major equity indices had bounced off their lows but remained in the red, with the Dow Jones Industrial average at 12.612, 69 points below its Friday close.  The tech-heavy Nasdaq, dealing with lay-offs at Research in Motion, traded down 13 points to 2,846, while the S&P 500 was down half a percentage point or 7 points to 1,338.

Debt ceiling talk has taken all the headlines and continues to worry investors.  With time running low to avert a sovereign debt default by August 2, debt ceiling deadline, Senate Majority Leader Harry Reid (D-Nev.) faced off with Speaker of the House John Boehner (R-Ohio) but did nothing more than propose partisan bills that would make an agreement hard to imagine.

Rocking equity markets, news that BlackBerry maker Research in Motion is to cut 2,000 jobs and reshuffle senior management took the stock down more than 3% to $27.05.  RIM has been under heavy fire recently, with shareholders, employees, and analysts flashing a red light.  The company is shedding about 11% of its workforce as it tries to keep up with competitors in the smartphone space including Apple iPhones and Google-powered Android phones.

Gold hit a nominal high of $1,624.07 during the early Morning, retreating to $1,617.6 at the time of writing.  Added to continued uncertainly over the future of the U.S., European debt woes provided support for the shiny metal.  Specifically, Greece was once again downgraded by Moody’s.  This time, a three notch downgrade to Ca, essentially ratifying that a default is imminent.


Friday Fun: CNBC – 10 Outrageously Expensive Fast Foods

July 22, 2011

You may ask: What does fast food have to do with the price of Gold in China? Other than the fact it will take more than a couple of ounces of Gold to purchase some of the meals on this list, nothing. But it is Friday and that is when we have our Friday Fun segment. Besides after a long week you might want to refresh yourself with one of these delights, our recommendation is the bowl of chocolate ice-cream from  Serendipity in New York, NY.

Follow the link above and enjoy!


Gold: Physical Pricing Could Disconnect From ETF’s

July 21, 2011

Gold & silver have pricing that is tied to the largest ETF’s for each metal. These prices as we have commented numerous times are driven by the physical demand for metals along with inflationary fears in the developing markets like China & India. There is also the debt crisis in the US & EU bringing droves to the safe-haven metals.

One of the results of these pressures on metals is that there might be a deviation between the physical metals pricing & the ETF pricing. There has been a surge of ETFs to gold, Robbert Van Batenburg Head of Global Research, Louis Capital Markets told CNBC, At some point, this is going to put so much stress on the system and I fear regulatory zeal will be drawn towards these ETFs at some point.

Some are calling for gold to have a market unto itself much in the same way the NASDAQ started for tech stocks.  Irakli Menabde, founding partner of fund manager M2 Capital Partners commented on CNBC, The gold physical market is more about the defensive nature of gold, but a gold stock market would also deliver dividends and surging share prices.

He further said, We have seen the decoupling between the gold price and gold stocks, and at some point we will see the divergence between gold stocks price and physical price. This is the natural course of events, the ETF markets will be speculated & over purchased due to the leveraging of their ownership of stocks to actual physical ownership of gold.

How this will look no one knows but my thoughts are ETF’s will bubble above physical metals then collapse. (Think Indy-Mac & Enron) In the end it will be those who have physical possession of their metals that will be the winners.

Read further: CNBC- Gold Could Go Much Higher: Investor


WSJ: Gold Keeps on Shining

July 20, 2011

Reuters

·        July 19, 2011
·        By Francesca Freeman

Gold isn’t cheap. But that doesn’t mean people aren’t prepared to pay for it. Even at more than $1,600 a troy ounce, the precious metal is still proving its worth.

Last week, we asked whether an ascent to $1,600 a troy ounce would scare off all but the most fearless of speculators. As it turns out, the answer is ‘no.’

Yesterday, gold finally cracked that level, gliding through the key psychological barrier to a record high of $1,607.37/oz in the European spot market Monday, before continuing upwards and reaching a fresh record Tuesday, of $1,610.14/oz. Although prices have since paused to consolidate as buyers adjust to the higher prices, some longer-term interest in the metal appears to be sticking.

“At $1,600/oz, gold may be overextended to the upside, but the bullish trend seems to be intact,” said Mitsui analyst David Jollie. “There are a large number of people effectively buying gold as a currency, so it may be that an expensive absolute price is not necessarily a reason not to buy. While some people will see $1,600/oz as too expensive, others will see a rising price as a reason to buy today rather than tomorrow.”

This mindset is particularly evident in Europe, where spot gold has soared to fresh records in both euro and sterling terms as European buyers exchanged paper currency for the metal, viewed to be a safe bet amid persistent fears over the euro zone’s debt crisis.

Exchange-traded products are once again proving to be popular tools for investors to gain exposure to gold. According to Barclays Capital, the amount of gold held in ETPs globally is at a fresh record high of 2,170.9 metric tons.

This is despite the seasonal weakness in demand, according to Barclays Capital analyst Suki Cooper, with the Indian wedding season–traditionally a time of strong demand–not slated to start for another two months. “We expect prices to test fresh highs amid the current environment,” Ms. Cooper added.

And the relative illiquid trading volumes currently are another sign that the market isn’t getting overwhelmed by a herd-like mentality, as was seen with silver when dozens of investors piled in and pushed prices higher earlier this year.

“It is encouraging that the market is quite quiet,” said a senior industry participant. “This suggests that this isn’t just a temporary sensation. People are not walking around the office high-fiving.”


Coiniac The Great: The Future of Gold

July 19, 2011

Coiniac The Great?

In light of the current highs in Gold, many prognosticators have gone on the financial airwaves, papers & blogs with varying looks at the future. Some are touting $10,000 gold in the next 5 years. Others have gold falling back to $800 an ounce in the next 12 months. They could both be correct but the Mind Your Money blog has called on its very own The Great Coiniac, a prognosticator of highly suspect vision for the future, we asked him a few questions.

Q: What will be the final price for Gold by the end of the year? A:  It will either be up or down from the current level of $1600 per ounce.  I foresee a retraction at the time of the Debt Ceiling Crisis solution. If this takes place prior to the deadline there may be as much as a 10% retraction. If it takes place after the retraction will be less.  Then gold should make a run towards the end of the year as it has done for the last decade.

Q: Is Silver a good buy now, or is this run going to come back down like it did a couple months ago?  A: Silver is a great buy today, even at over $40 an ounce silver will probably keep pushing up against the $50 mark. This should be broken through by years end, putting silver as the metals price winner for the year.

Q: When timing the market, what is the best time to buy? A: Never time the market! Have a plan and stick to it. My best advice? Buy on the days gold and silver retract like today. Then hold until… well hold until you have a metals portfolio that is conservatively 10% to aggressively 20% of your total net worth.  A constant plan of acquisition also aids in cost averaging your purchases over the time of your total acquisitions.

Q: Any final words of advice for our readers? A: Procrastination gives birth to future regret! Act today!


Daily Reckoning: Why the Gold Price Continues to Hit Record Highs

July 18, 2011

07/15/11 Laguna Beach, California

Gold up. Stocks down. Dollar down. Bonds down.

That’s not the sort of market summary that thrills very many folks, except, perhaps, about 99% of the folks who read The Daily Reckoning. But even Daily Reckoning readers like to see the stock market go up sometimes…and they usually don’t mind much if the dollar doesn’t fall.

Nevertheless, successful investing is never about what you would wish; it is about what you expect.

Despite their wishes, for example, your editors here at The Daily Reckoning have been expecting for a very long time that gold would go up and the dollar would go down, while most other investible assets went nowhere. That Big Picture call has been pretty much on target for more than a decade, and your California editor sees no good reason to alter course…or speed.

On second thought, you may want to alter speed a bit. You may want to acquire gold, silver and other hard assets more briskly than before.

Gold hit another new high yesterday. All-time highs are not usually the opportune moment to buy an asset. Then again, the gold price has nearly doubled since early 2008, when it hit a then-new all-time high of $850 an ounce. We would not be surprised to see the price of the yellow metal double again over the next three and a half years…or triple.

We don’t expect the gold price to soar because gold is such a great thing; we expect it to soar because the world’s major currencies are not such great things. A dollar bill looks good, only when you place it next to a euro or a yen. But all three look sickly when you place them next to a bar of gold.

The value of gold is backed by a 3,000-year legacy of being the ultimate currency and store of value. The value of a dollar, on the other hand, is backed by the full faith and credit of the United States. The problem is, there’s too much credit and not enough faith.

Yesterday, Moody’s and Standard & Poor’s both threatened to downgrade the credit rating of the United States. The threat of an official downgrade resonates with the real-time unofficial downgrade that is already underway in the market for credit default swaps (CDS).

To review: CDS are a kind of “default insurance.” The buyer of a CDS is buying insurance against default by a specific issuer of debt, whether that be a company or a country. The greater the apparent likelihood of a default, the higher the price insurance. That’s why the price of a Greek CDS is 1,000 times greater than the price of a Norwegian CDS.

This extreme pricing difference is to be expected. In absolute numbers, the national annual deficits of Greece and Norway are identical. But while the Greeks are running a budget deficit equal to about 14% of its GDP, the Norwegians are running a budget surplus equal to about 14% of GDP. Greece might default tomorrow. Norway is unlikely to default any time this century…or at least not until its North Sea oil runs out.

Interestingly, the price of 5-year CDS on US debt is also higher than that of Norwegian CDS. Both issuers are rated AAA. And not so long ago, CDS prices on both of these sovereign borrowers were identical. For a short while, in fact, Norwegian CDS were more expensive than their US counterparts. But the spread between the two has been widening out during the last several months. In other words, US CDS prices are rising relative to Norwegian CDS.

As of this morning, US CDS are more expensive than the CDS of six other AAA-rated sovereign borrowers. According to CDS buyers, therefore, the United States is somewhat less deserving of its AAA rating than Norway, Sweden, Switzerland, Finland, Netherlands and Germany.

Counterintuitively, despite the threat of downgrades and the rising price of CDS, demand for long-dated Treasury bonds appears to remain fairly strong. Yesterday, the Treasury attracted higher-than average-demand for an auction of 30-year bonds. “The bid-to-cover ratio on the $13 billion in bonds,” Bloomberg News reports, “which gauges demand by comparing total bids with the amount offered, was 2.80, versus a 2.64 average at the past 10 sales.”

But the longer Congress dithers about the debt ceiling and budget cuts, the greater the peril the US Treasury market faces…and the higher US CDS prices climb. Most likely, Congress will figure out some way to finagle a non-default by pretending to implement “tough” budgetary revisions, while functionally kicking the can down the road. Whatever the near-term outcome, the protracted bickering on Capitol Hill has confirmed what America’s largest creditors already feared: America has an enormous debt problem and has zero resolve to dealing with it.

But as one of our guest columnists recently remarked, “That’s why they made gold and silver.”

Eric Fry
for The Daily Reckoning