GEAB N°41 is available! The Decade 2010 – 2020: Towards a knockout victory by gold over the Dollar
- Public announcement GEAB N°41 (January 16, 2010) -
The US Federal Reserve is no longer able, in reality, to continue its multi-decade combat against the « barbarous relic » in order to guarantee the supremacy of the US currency at the centre of the international monetary system. For LEAP/E2020 the decade which has just begun will be clearly marked by a complete KO of the Dollar (and the fall of most major international currencies) by gold.
We have often reminded readers in different GEAB issues that gold constitutes both a medium/long term investment intended to protect one’s capital against the risk of a loss in value of paper currencies and financial assets, and an eventual means of payment in the event of a very serious monetary crisis. In these two cases the choice of placing a portion of one’s assets in gold is a response to anticipating events and risks in the coming years (and not the coming weeks or months). For this GEAB N°41, a special edition at the beginning of a new decade, it seems opportune to LEAP/E2020 to put forward its anticipations on gold’s progress for 2010 – 2020, completing what the team wrote in issue N°34 of the GEAB in April 2009. This view of the decade is even more legitimate since we consider our analysis constitutes an aid for both individual investors as well as for the heads of central banks and institutions in charge of maintaining the value of a large amount of assets in the medium and long term (for example, pension, sovereign and insurance funds). Indeed for the first time in almost 40 years (since the ending of Dollar convertibility to gold in 1971), the interests of the world’s central banks and individual investors, once again, converge on gold: value is no longer at all guaranteed by the Dollar as an international reserve currency and, as long as the latter has no globally recognised successor, gold remains the only asset capable of maintaining this value.
We already took a look at the paradox of the gold market in the GEAB N°34, showing that if the market for the yellow metal seemed to be well controlled by the Fed and the large central banks to prevent any significant appreciation in the gold price, nevertheless, because of the global systemic crisis, the structural collapse of United States’ influence (and thus the Fed) and the related breaking up of the international monetary system inherited from 1971, gold was a safe investment in times of great uncertainty. As a reminder, since the publication date of the GEAB N°34 gold has gained more than 30% in US Dollars and more than 23% in Euros. In addition it has gained more than 100% in US Dollars and more than 85% in Euros since our first recommendation to diversify out of other investments in favour of physical gold (up to a third of assets) given in 2006.
Decade 2000-2009: Gold’s gain against 17 currencies (in %)
But if gold has seen its price rise considerably since then, it is not the result of any market move towards greater transparency and less manipulation by the US Federal Reserve and its major supporters. The three main tools used in an attempt to prevent any return of gold to the centre of the international monetary system are still in place, that is:
. the development of a « paper gold market » swamping the physical gold market in a sea of fictitious contracts which are essentially pledges on gold which in reality doesn’t exist (or, which amounts to the same, is repeatedly used for different contracts)
. the falsifying of the levels of actual physical gold reserves, especially those of the United States, which have not been subject to independent audit for decades
. the communication tactic, via major economic and financial media, of systematically suggesting that investment in gold is out of date, reserved for old people who only swear by gold in the same way as they would tell stories of forgotten wars, or by gold bugs whom the precious metal turns mad.
As the whole world has been able to see over the course of these last forty years, and until recently, this strategy worked extremely well, even leading a number of other countries, United Kingdom in the first place (1), to divest themselves of their gold reserves at rock bottom prices. This story thus shows very clearly the necessity for decision-makers, either to have a strong personal ability to anticipate events, or to have access to such quality anticipation. In this case, the bill for not anticipating events will reach at least ten billion USD.
But if the market, organised in such a way to permit gold to be held at a distance from the international monetary system for forty years, has continued to function, what is it that has changed and made this strong rise in the gold price possible? It is the overturning of a factor essential to world order, due to the growing impact of the systemic crisis and the entry into the phase of worldwide geopolitical dislocation: the US Federal Reserve no longer has the means to battle against the old enemy of US Dollar hegemony which gold represents. This loss of ability is, of course, a complex phenomenon, consisting of many facets which we analyse in this GEAB edition.
Major world currency prices versus gold (1900-2009) (Euro = Deutsche Mark before 1999, the broken line is German inflation of 1922 and the breakdown after WW2) – Source: World Gold Council / Matterhorn, 12/07/2009
As previously indicated, the publication of this first GEAB of the year, where we usually publish our anticipations for the next twelve months, exceptionally coincides with the beginning of a new decade and, what is more, a decade which all careful observers feel will mark an upheaval in the world order. Exceptionally as well, Franck Biancheri the GEAB coordinator, in the course of writing a book which deals with the post-crisis world (publication in France expected in spring 2010), has agreed to make one of his two anticipation scenarios for the decade 2010-2020 (2) available to our team, and therefore to the GEAB readers. Our team has seized this occasion to give our subscribers the benefit of a rational geopolitical « dive » into what the coming decade holds for us. Out of the two calendars, entitled respectively « The painful dawn of the world after (3) » and « The tragic twilight of the world before (4) », our team has chosen to present the latter which is, without any doubt, the most worrying, but which also seems to us to more clearly reflect the trends at work today.
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Notes:
(1) In 1999, Gordon Brown, then Chancellor of the Exchequer, was the architect of this huge economic-financial mistake which has cost, at current prices, more than 10 billion USD in lost opportunity to the British treasury. The article in
The Times of the 12/28/2009, provides a rare example of an advantageous comparision for France vis-à-vis Great Britain due to its decision at the time to not follow the « economic and financial fashion » dictated by Washington. That said, British taxpayers can console themselves by bearing in mind that if there had been another ten billion in their coffers, their government would have just given it to the banks over the course of these last months. And, to raise their spirits, they ought to know that The Times forgot to state that Nicolas Sarkozy, then French Finance Minister, organised a sale of a smaller amount of French gold also on ideological grounds (Source:
Boursorama, 12/30/2009). No comment!
(2) We wish to remind our readers that this sort of scenario, presented here as a yearly chronicle of the decade to come, doesn’t pretend to be a detailed description of future events. Its main purpose is to make more understandable, more lively the trends identified during the work of anticipation. These chronicles of the future are, so to speak, a pictured version of the fundamental analyses described elsewhere.
(3) « The painful dawn » because giving birth to a new world order can only be painful, like all birth, even if what follows is clearly positive.
(4) « The tragic twilight » because if this is the route which is followed, it will have all the characteristics of a tragedy, i. e. a sad ending and the awareness by all the participants in the story that it will finish very badly.
Samedi 16 Janvier 2010
magari con questa previsione catastrofica per il dollaro con conseguente trionfo dell'oro c'entra anche questa notizia
http://www.thedailybell.com/743/CFTC-to-Limit-Gold-and-Silver-Trading.html
sempre sul tema 'chi è che compra i treasuries ?' ....
Who Is the 'One Big Bidder' For US Treasuries?
There are a number of possibilities for the identity of the non-primary dealer domestic source of enormous purchases at the longer end of the yield curve in recent US Treasury auctions.
It could be a misclassification, a branch of a bank representing a foreign power. The problem with this theory is that foreign Central Banks have a reluctance to buy the long end of the curve.
It also could be a legitimate domestic purchaser like a pension fund compelled to match duration of obligations, as is required by a little noted ruling of the US government a couple of years ago. They might be shifting out of other long term instruments with similar durations but more risk.
It might even be PIMCO. They certain have the money as the world's biggest bond fund, and they do offer
two Treasury ETF's which, although not directly related to the products bought, might be relevant on a cross trade. And PIMCO has recently been
talking down Treasuries in favor of corporates, which doesn't mean anything since traders often 'talk their book.' Still, unless it is for the ETFs it is hard to justify buying the long durations straight up in size. And while PIMCO says they do not like Treasuries, Benny and the Fed said they are buying long to keep interest rates lower. Why doubt them?
And of course, it might very well be the Federal Reserve Bank, or the Treasury via the Exchange Stabilization Fund.
It could also be the big bidder who comes in with some regularity and smashes down the price of the precious metals, with the obvious intent of manipulating the market, like clockwork just after the PM fix in London with some frequency.
It might even be the mysterious bidder who stands ready to buy the SP futures at every weakness, maintaining a floor on the market, and a steady drift higher in prices, with no change in fundamental underpinnings. Their hand in the market is apparent.
It is less probable, given the state of market manipulation by a few big proprietary trading desks riding another wave of cheap FEd money, but it might even be the party that entered the US equity market yesterday at 12:03 PM with a HUGE order (228,000 contracts) to buy the SP futures. As Larry Levin noted, "As of now I don't have a firm answer, but whether it was HFT activity, the "Helicopter," or a massive cross trade, it sure set the bottom in for the afternoon. Everyone in the Dow, Nasdaq, and S&P pits were talking about it and nobody was willing to sell into that massive bid." And so the market rallied once again into its current peak. No doubt it will be blamed on Monsieur Fat Fingers. Funny how lucky the big prop traders are with their reckless accidents, with millions gained from gaming the market, and all by accident.
As the article from the Financial Times indicates, it might never be possible to find out who this is, unless there is an audit of the market that is made public. As Edmund Burke noted,
"Fraud is the Minister of Injustice" and it is my experience that
opacity is the accomplice of fraud. Who has the most to hide these days?
Personally I think the Fed is buying across the yield curve to affect interest rates, and Treasury takes care of stocks and commodities through the Exchange Stabilization Fund, and friends in a few key banks, but who can say for sure, without the power of wiretap, audit, and subpoena?
If this is price manipulation, no matter the intentions or beneficiaries, it is likely that it is mispricing risk in a big way, misallocating investments, and will eventually will fail. Its failure will cause a great deal of pain in the real economy for innocent bystanders, and will end in tears. And when that time comes, expect those who created the crisis to make the public another offer that they think you cannot refuse, in excess of their last demand for 700$ billions,
tout de suite.
You decide what is most likely, and what needs to be done about it, if anything.
More than a few people are wondering at the lack of response from the people in various nations, particularly in the UK and the US. Here is some old knowledge that might prove illuminating.
National Madness
Gilbert Keith Chesterton 1910
"This slow and awful self-hypnotism of error is a process that can occur not only with individuals, but also with whole societies. It is hard to pick out and prove; that is why it is hard to cure. But this mental degeneration may be brought to one test, which I truly believe to be a real test.
A nation is not going mad when it does extravagant things, so long as it does them in an extravagant spirit. But whenever we see things done wildly, but taken tamely, then the State is growing insane...
For madness is a passive as well as an active state: it is a paralysis, a refusal of the nerves to respond to the normal stimuli, as well as an unnatural stimulation. There are commonwealths, plainly to be distinguished here and there in history, which pass from prosperity to squalor or from glory to insignificance, or from freedom to slavery, not only in silence, but with serenity."
And in this slow descent into madness, the worst is surely yet to come.
Financial Times
Direct bids for US Treasury notes lead to speculation over buyer
By Michael Mackenzie in New York
January 14 2010 02:00
Auctions of US Treasury notes this week have attracted extremely strong buying from domestic institutional investors, fuelling speculation that "
one big bidder" has decided to defy the conventional wisdom on Wall Street that US government debt is due for a fall.
Yesterday,
direct bids accounted for 17 per cent of the sales of $21bn in 10-year Treasury notes, far higher than the recent average of 7.4 per cent. It was the highest percentage of direct bids in a 10-year Treasury auction since May 2005.
On Tuesday, direct bids accounted for a record 23.4 per cent of the bidding for $40bn in three-year notes, up from an average direct bid of 6 per cent.
Market participants say
the unusually high level of direct bidding suggests that a large investor is looking to accumulate Treasuries without alerting the primary dealers on Wall Street to its intentions.
"It appears to us that someone is trying to hide their apparent interest in owning these auctions from the rest of the market," said David Ader, strategist at CRT Capital.
Rick Klingman, managing director at BNP Paribas, said: "It is unusual to see such a spike in the direct bid and I would imagine it is one big bidder. There is no way we will find out who it is, not now, or ever."
The surge in direct bidding is particularly notable because it comes after predictions that the record levels of Treasury debt issuance would exhaust investor demand, driving yields higher.
Among the most high-profile warnings came from Pimco, manager of the largest bond fund, which raised concerns about the escalating supply of US Treasury debt.
Attention will now focus on
whether there is similar direct demand for today's $13bn 30-year bond sale.
The 10-year notes were sold at a yield of 3.754 per cent yesterday, the highest rate awarded for a note sale since June, when they were issued at 3.99 per cent. At the start of the year the yield on 10-year notes briefly traded at 3.90 per cent, as many investors talked down the prospects for Treasuries. The note traded at about 3.70 per cent earlier this week and was at 3.70 per cent late yesterday.
Under the three main classifications of buyers in Treasury debt sales, direct bidders are generally
domestic non-primary dealer banks and large institutional investors. Normally their presence at Treasury auctions is small, as they usually buy debt through the primary dealer network, which currently numbers 18 banks and broker/dealers.
e molto condivisibile, non avevo idea della simmetria proposta con il 1980/1 che mi sembra corretta relativamente al ripristino delle scorte, cosi come è vero che l'aumento nelle scorte faccia da catalizzatore sui ratio economici
And of course, it might very well be the Federal Reserve Bank, or the Treasury via the Exchange Stabilization Fund.
... l'esperto di TIC era Brad Setser ma è passato sotto le ali governative ... sarà stato un caso
