Saturday, January 30, 2010

The Ultimate Bubble and the Mother of All Carry Trades

Among the many opinions expressed by billionaire investor George Soros over the course of the 2010 World Economic Forum in Davos, Switzerland was his statement on January 28 in an interview with Maria Bartiromo, host of CNBC's Closing Bell, that "When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold." New York spot gold closed at $1085.40 down $1.80, but the price of gold is not as much about gold as it is about the value of currencies, particularly the US dollar.
Since new currency is created through lending activity, very low or 0% US interest rates and government deficit spending are fueling a US dollar carry trade and monetary inflation in the US dollar resulting in rising asset prices and global speculation. According to Zhu Min, deputy governor of the People’s Bank of China, “[The US dollar carry trade] is a massive issue; estimates are that it is $1.5 trillion, which is much bigger than Japan’s carry trade.” The close relationship of global commodity prices, particularly the gold price, to the value of the US dollar can be seen by comparing the changing value of the US Dollar Index to an inverted US dollar spot gold price chart. George Soros is certainly correct in that low interest rates contribute to the formation of asset price bubbles, but neither the value of the US dollar or the price of gold depend only on interest rates or on the US dollar carry trade. The view that a gold price over $1000 per Troy ounce represents the “ultimate bubble” ignores the ongoing devaluation of the US dollar, discounts risks associated with the stability of financial institutions, governments and currencies, and does not reflect confidence consistent with sound fundamentals.

http://news.goldseek.com/GoldSeek/1264961100.php

18 comments:

  1. Soros knows that gold prices show no sign of the parabolic spike that we saw in oil prices in July 2008. Surely the next most obvious spike will be in bond prices – when the current stock market sell off really gets moving. Only after the bond bubble has blown up will gold become a candidate for the next bubble, and given the relative sizes of the bond market and the gold market that could be one humdinger of an ultimate bubble.

    palmer

    ReplyDelete
  2. I wish factpls would post over here.

    ReplyDelete
  3. I wonder how Soros' old partner, Jim Rogers, would respond.

    ReplyDelete
  4. Soros is a crafty devil and will pump the gold bubble hard.....in the end he may be buying the miners for one hell of a discount....hope ive got the cash left if they really tank for that last buy......auy at 5 ...oh my

    ReplyDelete
  5. kli,

    " Soros is a crafty devil"

    CORRECT, he knows very well the value of Gold, he will accumulate as others dump out of fear,heheeee!

    palmer

    ReplyDelete
  6. kli,

    By the way, your buddy Bernanke will do the same. Central bankers are licking their chops for cheap Gold, they have a special place for their Gold in Swiss banks, heheeeeee!

    palmer

    ReplyDelete
  7. One thing we know for sure, Soro's interest is in getting the price of gold down. That means he either:

    (a) short Gold
    (b) wants to buy Gold at a lower price

    No doubt it's (b)

    ReplyDelete
  8. Soros on purpose left an important part out which is:
    "George Soros is certainly correct in that low interest rates contribute to the formation of asset price bubbles, BUT and this is the part he left out, neither the value of the US dollar or the price of gold depend only on interest rates or on the US dollar carry trade. The view that a gold price over $1000 per Troy ounce represents the “ultimate bubble” ignores the ongoing devaluation of the US dollar, discounts risks associated with the stability of financial institutions, governments and currencies, and does not reflect confidence consistent with sound fundamentals.

    palmer

    ReplyDelete
  9. Kli do you think the highs are in for the year? Also do you think we are in P3 of Elliot Wave theory?
    You mentioned TBT in one of your posts. Is this the best way to short bonds or is there anything better?
    Many thanks for all the info you share.

    ReplyDelete
  10. Soro's intense involvement with pro-communist political groups means that his word is garbage. His words are political, and not of a financial nature whatsoever.

    ReplyDelete
  11. My thoughts are to not listen to what is said but watch what is being done.
    This works in most things, politics included.

    Soros called gold the ultimate bubble but neglected to say he was a seller.

    ReplyDelete
  12. Amen on that. Soros did not get rich by providing helpful advice to the general public, I respect his ability but not his candor. - Analyze.

    ReplyDelete
  13. Hey kli, here's an EW count from T-Bone (on Kenny's blog) that you may find interesting ... pretty much jives with the notion that GS will screw EW one last time by pushing the S&P to 1200+

    -wolfsonite

    ----
    I showed my wave 2 chart to Bobo yesterday and want to point it out to you guys again. I think it is the best count and there are many reasons to prefer it. But it gives us some important information assuming it is correct.

    1. it says P2 so far is a double zigzag, so in theory we could correct to say the 1000 or so area and make another run for the ideal wave 2 target of 1225 in a third zigzag.

    2. it gives a specific target that we should retrace to in a dramatic fashion, which is the begining of the C wave expanding EDT at 978.

    http://www.flickr.com/photos/43542857%40N07/4316044449/sizes/o/

    Some notes if you are wondering why i prefer this count:
    1. equality and symmetry in the A and C waves of both W and Y and equality in the W and Y waves themselves.
    2. C of Y meets all of the rules and guidelines of the Expanding EDT in EWP pg. 87-88 (Also those of you who were around remember I pointed out at 1029 area back in Nov that if it was an expanding edt, we should see a large zz that goes to at least the 1138 area. This is exactly what happened.)
    3. the other counts i have seen show triple zigzags. Dan's shows a running flat for the X wave that does not break the trendlines of the preceding C wave (so a corrective wave of one larger degree does not break the trendlines of the previous wave) this is not common for X waves and running flats and triple zz's are rare (note how the X wave move to 869 clearly broke the trendlines of the preceding C wave). the other is Kenny's which shows the Expanding EDT but it does not show a dramatic reversal back to the start of the wave as the guideline says it should. Also in both of these trip zz counts there is not symmetry in the W,Y, and Z zz waves.

    with that said, i am not saying the trip zz counts are wrong, only that they are not preferred. No rules are broken with Kenny or Dan's counts for example, but if you have a choice of counts then go with the most guidelines that conform in my opinion. Importantly, I am not trying to be right here, but i am cautioning that we could be in another X wave now, and we have a specific target using the double zz. If this is an X wave we should see a zz down to the 978 area and then another run to 1225 area or so; if P2 is over then wave 1 of P3 would also target 978 area. If nothing else it is something to consider. Pretty cool stuff.

    Y wave a little closer look (note the trendlines of C are now broken):
    http://www.flickr.com/photos/43542857%40N07/4316044465/sizes/o/

    ReplyDelete
  14. well....well.....can I give a credible EW count? NO ...Can GS give a credible EW count? Sure. because the ARE the market here. Will the market ultimately confirm the real economy? ABSOLUTELY. But that is on a GS time table for the near term. Can they go to 1225 the 61 fib? That has been my suspicion for about 9 months. Will they? dunno. The one thing I do know is they are going to hurt shorts as bad as they can.....and they sure as hell don't give a shit about longs either. Gold and miners have value so trade what you like but for me.....I will stick with something I can hold onto when they put my balls in a vise.

    ReplyDelete
  15. one more thing....Joe and Immred have alluded to owning the BEST of miners if you buy....GG GFI AUY ANV all are strong miners....beware of VGZ ...make it a spec play and convert to AUY. anyway babbling now. Oh and also TBT.....beware FED can continue to manipulate bond rates for awhile longer.

    ReplyDelete
  16. Also keep in mind that Immred insists on everyone loading up on Alpo as well. I've been consistently eating Eukanuba for a month now. I'm way sharper than before but *burp*, gotta use the potty again. - Analyze.

    ReplyDelete
  17. As far as charts are concerned, if 1058 on S&P is broken then 1020 is possible, breaking that one will take it to 980. I know that after 35 yrs in market and so does the one that matters most, the one as kli mentioned CONTROLs the current market, Mr. Goldman Sachs which means they will twist and turn those charts and use it against you any time they darn please. Conclusion is, trade what market gives you NOT what you think counts are supposed to be. Have some real asset, something valuable, and that takes you to Gold and solid miners.

    palmer

    ReplyDelete
  18. I agree with Kli. I dont think the top is in yet. What better way to suck in new money than running this higher albeit from a little lower level.

    Of course this is all a guess and like Joe says trade what they give you.

    Analyze you need to wash down the Eukanuba with some Pepto Bismol

    ReplyDelete