Friday, August 20, 2010

FRIDAY GAME update I

Just more noise as gold consolidates. We might get the long awaited beat down by October, but it looks less likely to me...but I can hope....keep your core here. I am 70% cash....this is getting really ugly behind the scenes. QE is already in force and will get extreme shortly. Then PMs will start moving hard.....hopefully November....and not before.

Gold may decline in New York as a stronger dollar cuts investment demand and as prices near a seven-week high curb physical purchases.

The dollar climbed to a five-week high against the euro after European Central Bank council member Axel Weber said the ECB should keep stimulus measures in place through the end of the year. Bullion usually moves inversely to the greenback. Gold reached $1,239.50 an ounce yesterday and is trading 2.6 percent below a record. Holdings in the biggest gold-backed exchange- traded fund rose for a third day yesterday.

“The slightly stronger dollar is weighing on gold,” said Walter de Wet, an analyst at Standard Bank Plc in London. “With gold at these prices above $1,220 an ounce, demand is slowing quite a bit” from physical buyers, he said.

Gold futures for December delivery lost as much as $5.80, or 0.5 percent, to $1,229.60 an ounce and traded at $1,233.20 at 8 a.m. on the Comex in New York. The metal is up 1.4 percent this week, heading for a third weekly gain. Bullion for immediate delivery in London was little changed at $1,231.50.

The ECB’s Weber told Bloomberg Television it would be “wise” to keep full allotment in weekly, monthly and three- month refinancing operations until after the end of 2010.

Gold has climbed 12 percent this year, heading for a 10th annual gain and outperforming equities, as investors sought a refuge from the European debt crisis and on signs that global growth may be losing momentum. Bullion futures reached a record $1,266.50 an ounce on June 21 and have gained 4.2 percent the past three weeks.

Back to Recession?

European and U.S. equities slid yesterday after employment and manufacturing data heightened concern that the country may be tipping back into recession. Reports next week may show U.S. home sales fell, Japanese export growth slowed and German business weakened, economists said. Asian and European stocks and U.S. futures fell today.

update I from Peter Cooper A recent report from Credit Suisse has warned that wage inflation in China is going to put pressure on the profit margins of major Western brands dependent on Chinese manufacturing over the next 12 months.

Over the past decade Chinese manufacturing salaries have risen from $1,000 to $3,900, according to The Daily Telegraph yesterday. But a series of strikes at key factories have sent wage inflation soaring to 25-30 per cent this year.

Inflation returns

The low cost of manufacturing in China has been the secret of low inflation in the West in the 2000s. That deflationary force is gone. This is inflation at a very basic level. Eventually manufacturers will have to pass this higher cost on with higher prices or inflation.

Now we hear the selling of gold by Chinese banks is being liberalized. The Chinese are not immune to inflation either and will want to buy protection in the form of gold, the one currency that cannot be printed.

At the same time investors in the West are waking up to the likely return of retail price inflation and what are they buying? Well, also gold for the same reason as the Chinese.

You do have to ask, where did that Chinese inflation come from? The answer is clearly the huge stimulus of historic proportions – actually half of GDP in six months – that ’saved’ China from the global financial crisis.

It is an economic axiom that too much money chasing too few goods will cause inflation, and this is what happened in China, causing workers to strike for higher pay. This is the classic wage-price spiral of inflation.

Gold prices

Of course, it will not only be gold prices that rise with inflation. Interest rates will have to go up to keep bond holders earning a reasonable return. Cash will buy less and therefore be worth less though not worthless.

House prices can fall in real terms in this environment, with interest rates rising, even if nominal prices remain static or fall only slightly.

It is really a matter of going back to the 1970s. Then it was oil price inflation sparking retail price inflation. Now it is the Chinese money supply expansion of last year.

29 comments:

  1. Gold needs to hold 1220 if not 1190/80 will be the target.

    Oil held the 73.50 loe volume on both sides.

    Dollar strong on decent volume

    Internals very weak.

    LLL at the bottom of the sideways channel

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  2. I was looking at LLL.

    Kli - you're taking Nancy and I where? Pleasure capital of the world according to Joe, Iraq? Sorry, just catching up...

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  3. gdx bounced off 50dma....hehhee...i'd like one last ride...bot my first lll position small.

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  4. traded out of sgg today....that means its goin to 60 in next three days...count on it

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  5. From the LLL MB

    http://www.prlog.org/10838051-l3-communications-holdings-inc-hit-by-investor-lawsuit.html

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  6. Homer......we were so successful in bringing peace and democracy to Iraq that joe thot i should invite you and nancy for a vacation tour over there now.

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  7. Should have posted this instead, bloomberg article

    http://www.bloomberg.com/news/2010-08-18/l-3-communications-accused-in-serbs-suit-of-training-croats-for-genocide.html

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  8. "buying opportunity"...who do you think controls the courts....MIC..

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  9. Just putting the info out there!!! hardly denting it anyway...

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  10. Homer,

    You are welcomed to bring your friends as well to visit beautiful and democratic Iraq, just make sure to tell them it's so nice there that the tickets are only one way, no need for return ticket back to states. A huge put has been bet on LLL last couple of days which means some one is betting on stock drop.

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  11. Some hedge funds are taking LLL down to make it cheap enough for entry, the rest is dog and pony show.

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  12. Thanx Joe - I feel honored Kli would want to bring us along, not sure how Nancy feels. As I said in yesterday's thread, I have some folks in mind as well I'd like to bring. Of and if I miss the flight Kli, don't wait for me, I'll get the very next available flight, you can count on it.

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  13. Homer,

    Nancy will enjoy it just fine since there is lots of freedom for women inside Iraq after minor issues like her entire body should be covered with veil in 140 degree temperature ( desert weather) and I know nancy has no problem being treated as second class visitor, it's all good and healthy visit. Just ignore shooting, beheading and all the other minor issues every 2 minutes over there.

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  14. Definitely bring the stars and strips clothing and cowboy hat.

    LLL can be taken all the way down to 60 without violating the longer term H&S, next stop is 65 though. Still waiting for SGY to bottom out for a small entry.

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  15. Red Mentioned:

    "Definitely bring the stars and strips clothing and cowboy hat."

    Absolutely, that will guarantee you get a better reception than other tourists.

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  16. I assume as always we should maintain the "ugly american" attitudes as well? Maybe carry a sign around that says Jesus saves? This sounds great, I'm taking notes for Kli...

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  17. Homer mentioned:

    "I assume as always we should maintain the "ugly american" attitudes as well? Maybe carry a sign around that says Jesus saves?"

    That will definitely guarantee lots of hugs and kisses on top of all the other beautiful receptions, they call it very special moment.

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  18. Homer, Don't forget to put the Islamic cartoons on the back, they have a great sense of humor over there!

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  19. btw funny boyz...VGZ looking goooood..

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  20. bot ssri sgy alu czz gfi...all for trade...still67% cash.....core small

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  21. Oh, guys, I'm packing my burkha. You know I don't mind since they won't be able to so readily determine my AGE. Where can I hide the mini bottles though? Sounds like I will need them.

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  22. May I suggest you show a lot of skin, I hear they are BIG fans. Also talking back to the men will garner tons of respect.

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  23. Bought some euo(double short euro)last week and may add on pullbacks for a longer term hold. Would appreciate your feedback on this.

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  24. Homer & Nancy,

    On a serious note, you should try to visit belize. It's beautiful.

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  25. Belize doesn't have a cost of living. It has several costs of living.

    The traditional view is that Belize is the most expensive country in Central America, yet one of the least expensive in the Caribbean. While there's truth to that, especially as regards travel, it really doesn't take into account that the actual cost of living in Belize can vary from almost nothing to sky high.

    You can live in a luxury four-bedroom house on Ambergris Caye, with air conditioning, telephones and faxes, a dishwasher, microwave and cable TV, U.S. food in your pantry and Jack Daniels in your glass, and you can spend thousands a month. Or you can live in a small house in Cayo, or around P.G., with no phone, eat beans and rice and rice and beans, with local rum to drink, maybe someone to help clean and cook, for US$300 a month. Some condos in Belize go for more than $40,000, but you can also find a nice small house for $4,000, and that includes furniture and kitchen equipment.

    After all, the per capita income in Belize is less than US$1,650 a year. A weekly wage of US$100 is considered pretty good. Tens of thousands of Belizeans live, and in many cases live comfortably, on a few thousand dollars a year. You can, too. Or you can compromise, forsaking those high-cost icons of civilization such as 80,000 BTU air conditioners, while keeping the Ford Explorer, boat or other toys which you enjoy. Live partly on the Belizean style, partly in the U.S. style, and enjoy the benefits of both, and you'll get more, for less.

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  26. http://www.shelteroffshore.com/index.php/property/more/american-retirees-choose-belize-10212

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  27. Actually I was looking it up a few days ago when it was mentioned. Looks fantastic. Oh, and I was meaning to look up the more interesting tourist spots in Iraq but just haven't gotten to it yet.

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  28. For Expats in Belize:

    http://www.expatexchange.com/expatreports.cfm?networkID=20

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  29. kli,

    More on expats in Belize:

    http://www.expatinterviews.com/belize

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