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Ardent Listener
Administrator
USA
4841 Posts |
 Posted - 08/05/2010 : 20:39:28
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Take The Next Exit Ahead
By Jon Nadler
Aug 5 2010 11:52AM
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Good Morning,
The enactment of exit strategies by the ECB as well as the Bank of England remained on hold this morning as both institutions left key interest rates unchanged, at 1% and 0.5% respectively. The central banks appear to be eyeing the continuing but fragile recovery in their respective economies and are opting to remain on the ‘loose’ end of interest rate policies for the time being. The psychology of the moment remains defined by ensuring that growth really sticks and intangibles such as confidence show clear signs of having become fully repaired.
On the surface, however, things are not too bad at all, actually. German factory orders not only popped higher, but they did so at twice the rate estimated by analysts back in June. Business confidence surged higher on the back of quite decent growth in the service and manufacturing sectors, as did loan volumes to private and corporate entities. The common currency refused to roll over and die, and has instead been staging a comeback of major (10%) proportions since the dark days of June when its obituaries were written every hour on the hour.
Furthermore, something that was practically off the table just two months ago, happened this morning over in the Old World; Greece was cleared for the next tranche of EU/IMF loans - a resurrection of the type that should put to bed any lingering apprehensions about its fate. Such conditions should make for a Jean-Claude Trichet who could stand in front of a battery of microphones perhaps as early as next month and outline the exit strategy that some investors are already starting to price into their trades even as today’s sentiment says ‘steady as she goes.’
Mr. Trichet offered a dress-rehearsal of that yet-to-be-delivered speech this very morning, when he stated that Europe is bouncing back faster than anticipated and that the turmoil in the money markets has largely gone by the wayside. That, he said, is opening the door (the ‘exit’ door that is) to a policy shift. Markets are betting no dice on the above until circa one year from now. We think they will find some scheduling…surprises in Mr. Trichet’s jawboning, come September.
Gold prices opened with a $1.40 gain in New York this morning, quoted at $1197.00 as against a US dollar trading at 80.70 on the index (down 0.25) once again. The yellow metal later eased back to the low $1,190s price levels as the dollar gained and climbed back to the 80.80 and then the 80.90 mark. Modest declines were noted in crude oil (falling to just above $82.00 per barrel) and the Dow (dropping 36 points to 10,644.00) following the jobless claims filings numbers.
Noise levels among the bulls are once again on the rise, despite yesterday’s failure to hold above the round figure on a closing basis. Another attempt could be in the cards for today, but traders note the (once again) emerging battle of the funds versus the physical buyers (overseas). The market appears unable to accommodate both armies at once. Thus, gains are seen as capped for the time being, despite unequivocal declarations that the correction has run its course.
Silver gained one dime on the open, starting the session off at $18.38 the ounce. The noble metals gave back a modest amount of value at the open. Platinum fell $3 to the $1576.00 level, while palladium was off by $1 at $495.00 the ounce. No change reported in rhodium once again, with the quote at $2170.00 on the bid side. Jobless claims and their digestion dominated early action in the trading pits this morning.
The unemployment claims figure –as reported by the US Labour Department- jumped by 19,000 filings (to 479,000) in the latest reporting week. That is a three-month high. US unemployment remains at 9.5% and job growth remains on the sluggish side. Still, that’s a pretty far cry from the 20.1% unemployment rate reported by Spain as of its latest tally.
Friday’s US unemployment figures are generally expected to show that the economy shed jobs for a second consecutive month. We will see how markets might greet that little piece of statistical data. The safest bet is that volatility will be manifest in the wake of the numbers and that it might be exacerbated by pre-weekend book-squaring activities.
PIMCO’s CEO Mohamed El-Erian is suggesting that the odds of a US deflation and double-dip recession are currently only at about the 25% mark, but he does so while noting that the rate at which firms and individuals are saving/accumulating/hoarding cash (up to 6.4% in American households) is countervailing government efforts to stimulate growth in the economy.
Meanwhile, US inflation (counter to the alarmism to be found in hard money newsletters) is running at the lowest level in forty years. Mortgage rates fell to their lowest level since 1971 according to the latest Freddie Mac survey. Of course, 1971 is when the survey was launched, so the actual headline becomes: “mortgage rates hit an all-time low.”
Over in Asia, the outlook for the real estate market (a topic upon which we focused in preceding days) is dimming by the day. Chinese government efforts to curb rampant property speculation are starting to stick. Look for evidence of a shift in perception, no further than the most recent decline in LME copper values. The orange stuff lost nearly one percent in London this morning (to $7450/ metric tonne) after having touched its highest level since end-April just yesterday. Of course, yesterday is when Chinese regulators asked domestic lenders to factor in a scenario of a 50 or 50 percent price drop in real estate when they run upcoming stress tests on their loan books.
Closing out today’s roundup, it’s time for a quick session of “Myth-Busting 101” once again. Yes, this is about the US dollar and about gold. Here we go:
Myth: Most hard money newsletters would like us to believe that everyone is now bullish on the dollar, and that they are totally misguided in this level of optimism.
Fact: According Elliott Wave analysts, at the present time, only 6% of dollar traders are bullish on the currency. That is a level of bullishness that is actually lower than the percentage (7%) that was recorded when the greenback hit its lows, back in late November of last year. Today, of course, the difference is that the US currency is nowhere near that dismal 74.17 (on the index) level. EW also suggests that “this is typical wave two behavior, whereby the sentiment extreme reached near the end of the correction often exceeds that which was present at the start of the previous first wave.”
Myth: Gold is inversely correlated with conventional asset classes and is a good portfolio diversifier.
Fact: At least as far as the Baring multi-asset fund is concerned, that view is so…1980. Baring investment manager Andrew Cole opines that the rationale for holding gold in a basket of assets has morphed. Gold is no longer uncorrelated to other asset classes, gold no longer offsets risks in other sections of one’s portfolio, gold now falls and rises along with [other]assets such as corporate credit, for example. Exceptions to this rule? But two. US [long] bonds and their British and German equivalents.
Mr. Cole still holds the view that one can make a long-term case for the presence of gold in an asset pie-chart, but cautions that the metal is no longer to be thought of as a [risk] diversifier.” Wonder what the gold lobby might have to say about that. Not that you have not seen the evidence of tandem gold-equities/ gold-credit/ gold-dollar / etc. rises and falls over the past several years. You know you have.
Thus, we say, keep that yellow-tinged 10% insurance ‘policy’ up to date, folks. Just don’t get carried away with formulae that might have applied to gold back when hair bands were in fashion.
Happy Trading.
Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal
Editor’s Note: Meet the Kitco Team at the upcoming Kitco Metals eConference September 12-13, 2010. A not-to-be missed event featuring Ron Paul, Marc Faber and other industry heavyweights. The eConference is free with Pre- Registration You must be logged in to see this link.
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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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Ardent Listener
Administrator
USA
4841 Posts |
Posted - 08/05/2010 : 21:22:14
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China's 65 million vacant homes
China Has Been Covertly Funding A Housing Bubble Five Times Larger Than That Of The US: 65 Million Vacant Homes Uncovered
China just announced that its Q2 GDP came in at 10.3%, just below a consensus estimate of 10.5%. Surprisingly, for some odd reason the market seems to believe this "data." Although in retrospect, based on China's bottom up GDP goalseeking, the number, which we will show in a second is completely irrelevant, could very easily be true, based on two just announced stunners about the Chinese economy. The first comes from Fitch, which in a report released today titled Informal Securitisation Increasingly Distorting Credit Data, uncovers that China has in fact been massively underrepresenting the actual amount of new loans in the first half of 2010, courtesy of precisely the kinds of securitization deals that blew up half of our own banking system: "Adjusted for informal securitisation activity, Fitch estimates that the net amount of new CNY loans extended in H110 was closer to CNY5.9trn, or 28% above the official figure of CNY4.6trn...on a flow basis the volume of credit being shifted off balance sheets in recent times has been large and rising. Activity also is largely concentrated among just a few dozen banks, and institution?specific exposure is often much higher." And some are wondering why China's AgBank was scrambling to raise $20 billion via a hurried IPO... Yet this data pales in comparison with disclosure from a recent article in South China Morning Post, in which an economist at the Chinese Academy of Social Sciences noted estimates from electricity meter readings that there are about 64.5 million empty apartments and houses in urban areas of the country! This number is five times larger than the roughly 12 million in total US public (3.89 million) and shadow (8 million as estimated by Morgan Stanley) home inventory available currently. Forget Stephen Roach - China is covertly funding and creating a housing bubble that is at least 5 times as big as that of the United States. We leave it up to you to imagine the consequences of that particular bubble's bursting...
The Fitch report is pretty self-explanatory (presented below) but here is a section that highlights that China's banks are increasingly becoming more opaque in data presentation, which one can assume is due to their unwillingness to reveal the true state of affairs. Of course the same tactic worked very well for our own subprime sector... until virtually every company in the space went bankrupt in the span of 3 weeks in 2007.
Already Weak Disclosure is Getting Even Worse
Data on the sale and re-packaging of loans into CWMPs has always been sparse, but, historically, observers have been able to track activity by the number of CWMPs issued each month using information collected by small third-party data providers. However, as public scrutiny of informal securitisation has risen, Fitch has observed a noticeable worsening of Chinese banks’ already poor disclosure of this activity.
Some banks very actively engaged in transactions last year are showing up in 2010 data as minimally involved, yet the bank’s own salespeople (responding to Fitch’s enquiries) state that business remains as strong as ever. Meanwhile, private placements of products to institutional investors are becoming more commonplace, most of which are never disclosed to any entity but the CBRC. Because of this worsening in disclosure, data from third-party providers is capturing less and less transaction flow, with as much as 40% of deals in H110 going uncaptured, versus less than 10% prior to end?2009.
As for actual issuance metrics, as Fitch says, the "volume of credit being re?packaged on the rise."
Data on the number of outstanding CWMPs and CTPs shows net issuance accelerating in H209 as credit conditions tightened, followed by a flattening out in H110 (Chart 3). While the recent moderation in part reflects the looser credit environment in H110, the significant worsening in disclosure in 2010 also has been a major factor distorting recent data. Indeed, when historical figures are adjusted to strip out the entity that most conspicuously dropped out of issuance figures in 2010, net product issuance swings from #8722;7% to +1% in H110.
rest...
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beauanderos
1000+ Penny Miser Member
USA
2408 Posts |
Posted - 08/08/2010 : 13:54:57
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quote:
China Has Been Covertly Funding A Housing Bubble Five Times Larger Than That Of The US: 65 Million Vacant Homes Uncovered
China's population is nearly five times greater than the US. This article header is reliant upon hyperbole to grab the reader's attention. Though they may have a problem with vacant homes, it's not nearly as bad as they imply by misuse of statistics. |
Hoard now and hold on!
http://coppermillions.blogspot.com/
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Take The Next Exit Ahead
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