Perspectives on the global economic meltdown- (Nov 28 2010)

Christopher Sidor · Post by **Christopher Sidor** » 26 Aug 2011 16:48

Neshant wrote:how come India has such a sh&tty deal by comparison with these Swiss ?

Because we have a so called "decent" PM who insists on surrounding himself with "indecent" people. Wonder what use is this so called decency?

VikramS · Post by **VikramS** » 27 Aug 2011 05:05

Neshant:

Globalization certainly helped US corporations. But not US workers. As gakkad pointed out, it is simply much less expensive to get work done outside the US. This not only allows access to foreign markets but also a source of cheap labor to serve the US market.

Stable systems are inherently self-correcting. The current system where currencies are pegged to the dollar in inherently unstable. As long as the size of the imbalance was small, the problem could be brushed under the carpet. But now the imbalances are so big that that it will require a major re-calibration. Protectionism will be a natural fall-out.

Its funny that you pick on automobile industry, the poster child of union driven inefficiency as an example of lack of US competitiveness. Your comments about race show how much you need to get out. At least here in California, the Hispanic folks are one of the hardest working people around. I do agree that it will be a challenge to build national consensus when the population is more diverse; the current partisan politics environment is perhaps a great example.

The reason I am bullish long term on the US is because when viewed in isolation it has everything a nation needs: advanced technology, natural resources, decent demographics, a lot of land, geographical security, and military strength.

A lower dollar will certainly make commodities more expensive. But most advanced economies are service driven (I think even in India > 50% of GDP is services). So while it will lead to inflation, the overall quality of life of Americans is not going to collapse over night.

Further all the entitlements are just that; entitlements. The good thing about the American system is that left to its own devices it tends to self-correct. If there is no money left for Medicare, the system will find a way to ration services, reduce compensation etc. to make do with what is available. What is needed is the political will to make that call. It will take a few shocks but that will eventually happen. A bulk of medicare spending goes to keep dying people alive on vents; cut that and a lot of problems get solved.

Airavat · Post by **Airavat** » 27 Aug 2011 07:48

In a widely awaited speech at Jackson Hole, Wyo., Bernanke said the Fed was prepared to stimulate a battered U.S. economy that many fear is on the precipice of a second recession. But despite speculation to the contrary, he didn't offer more prescriptions for loose money to help alleviate the economic gloom.

WSJ

Neshant · Post by **Neshant** » 29 Aug 2011 04:50

pretty sure he will be printing behind the scenes anyway.

in fact i don't think the printing pressses have ever stopped rolling.

Neshant · Post by **Neshant** » 29 Aug 2011 04:54

VikramS wrote:Neshant:

You are addressing the wrong person, its some other guy who replied you.

yogi · Post by **yogi** » 30 Aug 2011 10:15

I think this scenario is just too important to be missed in this thread.

Get ready for the next bull run in GOLD (rediff.com)

"Estimates suggest that nearly 211 tonnes of the 400-odd tonnes of gold that Venezuela has are with banks abroad. Chavez has asked this gold to repatriated back to Venezuela."

...a lot of the gold lying abroad is with what are known as bullion banks. J P Morgan is one of them. Estimates suggest that Venezuelan gold worth $807 million (or around 450,000 ounces of gold) is lying with it... Estimates suggest that the total amount of physical gold with J P Morgan currently stands at around 338,303 ounces (1 troy ounce equals 31.1 grams)."

"Central banks around the world had a huge amount of gold lying in their vaults, not earning any return. By the end of 2007, central banks around the world had 32,000 tonnes of gold. Out of the 32,000 tonnes they had, they lent out 14,000 tonnes to bullion banks like J P Morgan. As James Turk and John Rubino explain in The Collapse of the Dollar, 'Lending, for instance, involves the central bank transferring gold to a major private bank, known as bullion bank, which pays the central bank a small-but-positive interest rate, then sells the gold on the open market'

The operative word here is lending. The gold has been lent, and so central banks can demand it back... Because the bullion banks have promised to eventually return the borrowed gold to the central banks, they are, in effect, 'short' gold. That is, at some point in the future they are obligated to buy gold in order to repay the central banks. So which effectively means that the likes of J P Morgan will now have to buy back gold in order to repay the Venezuelan government given that Venezuela has around 450,000 ounces of gold with J P Morgan, whereas J P Morgan has only 338,303 ounces on its books.

... And this buying will lead to the price of gold rising further. But that's just one part of it. As a recent report titled Thing That Make You Go Hmmm points out, 'Chavez's move could set in motion a chain of events whereby Central banks who store the bulk of their gold overseas in 'safe' locations scramble to repossess their country's true 'wealth'. If that happens, the most high-stakes game of musical chairs the world has ever seen will have begun... The report further points out, 'Any delay in repatriating Venezuela's gold could potentially start a frantic scramble by central banks to claim their physical gold and, if that happens, you can be assured that a fire will be lit under the gold price the likes of which we haven't yet seen...

Not to mention that in order to buy all this gold, Central Banks will have to dump US treasuries, meaning a shock to the USD.

skumar · Post by **skumar** » 30 Aug 2011 12:43

Neshant wrote:how come India has such a sh&tty deal by comparison with these Swiss ?

Because the Indo-Swiss deal is supposed to keep nosy Indian investigators out of Swiss banks.

VikramS · Post by **VikramS** » 30 Aug 2011 13:06

yogi:

The banks already own the gold; they do not have to sell anything to get it. It is stored physically with the bullion banks instead of the central banks storing it in their own vaults because of safety concerns, liquidity and the ability to earn a return.

http://www.blanchardonline.com/beru/len ... rt_toc.php

What some are concerned is that actually locating that much gold physically may not be possible in the short term. Further if other central bankers or even individuals start to demand physical ownership of their gold, the pressure of finding the real supplies will overwhelm the physical market.

This is because the bullion banks use leverage on their real physical stores of Gold and if everyone asks for their gold at the same time, there is going to be a run on the bullion banks, very similar to a bank run where savers withdraw their money from the bank.

BTW, you can convert Mercury into Gold using particle accelerators. So if the price is right, the supply of Gold can be increased too

Neshant: Yes, sorry it was gakakkad who wrote that post.

svinayak · Post by **svinayak** » 30 Aug 2011 13:16

Crony capitalism and Socialism are NOT capitalism. Both of the former are doomed to fail whenever they are tried.

Capitalism is not only the free flow of goods and services, but the free flow of INFORMATION: the price signals that supply and demand convey. When you choke off the free flow of information, the economic system is bound to fail.

Where is the mystery in that?

Marx was not only wrong, but he was a complete leech on society, borrowing the money from Engels to burry his own daughter.

Do we need to follow or listen to role models like that? I think not.

You can safely trash Marx, his progressive followers,
They and it are the problem, not the solution.

Christopher Sidor · Post by **Christopher Sidor** » 30 Aug 2011 16:37

Hindu is running an article, dated 28-Aug-2011, about the crisis in the developed world

While it is a decent compendium of the issues facing the west, it does have a word of caution for India

It is often argued that India's foreign trade, as a proportion of GDP, is relatively small. Hence, outside influences on the economy will be minimal. This view is too narrow as there are many other channels, besides foreign trade, that connect the Indian economy to the rest of the world.

Notably India's balance of payments has been dependent on capital flows. Uncertainty over the U.S. economy may cause capital flows to behave irrationally, often going back to the sanctuary of safe haven instruments in the U.S. On the other hand, if the U.S. Federal Reserve, as part of its efforts to provide succour to the U.S. economy, does another round of quantitative easing, that is, buying government bonds with freshly minted money, cross-border flows towards India and other emerging markets may increase exponentially, posing major policy challenges for these economies.

Dammed if we do, Dammed if we don’t. This is a repeat of what happened in 1989-91, when we were hit by a triple whammy. Then also the capital flows reversed, again in response to the savings & loans crisis (read financial crisis) in US. Which eventually led us to mortgage our gold to the Western nations in 1991.
It is true we have political freedom. It is true that we are self-sufficient in food & water. But it seems just like in 1950s, we do not have capital freedom. We are still dependent, on outside for funding. Our stock markets gyrate based on decisions made in Singapore/new york/London/etc.

Neshant · Post by **Neshant** » 30 Aug 2011 17:30

Acharya wrote:Crony capitalism and Socialism are NOT capitalism.

i find it ridiculous that all the ills of socialism are attributed entirely to socialism.

but the ills of capitalism are quickly relabelled socialism.

the fact is the emergence and growth of the useless middleman industry under any system brings about its downfall.

ldev · Post by **ldev** » 30 Aug 2011 20:40

Recently met a former high flying Icelandic entrepreneur - he is still high flying albeit in a different industry/country. As you know the UK demanded compensation from Iceland for retail deposits lost when Icelandic banks operating in the UK went bust. I asked him how their famous volcano is doing nowadays. He reponded," The British wanted cash - we gave them ash!!

- accompanied by the universal one figured salute!!

svinayak · Post by **svinayak** » 30 Aug 2011 23:43

Christopher Sidor wrote:
It is true we have political freedom. It is true that we are self-sufficient in food & water. But it seems just like in 1950s, we do not have capital freedom. We are still dependent, on outside for funding. Our stock markets gyrate based on decisions made in Singapore/new york/London/etc.

Indian political strategy for economy is the weakness. Indian economy has a mix of large socialism with some pockets of efficient private capitalism and no grand strategy for capital formation. Indian economic news and data gathering has to be done for India centric economic strategy. Then Our stock markets will not gyrate based on decisions made in Singapore/new york/London. Most of the current Indian news is the western interpretation of the world news and does not give the Indian economic picture( such as less links to global supply chain and isolated demand). Indian markets are being social engineered with information from western news source.

Capital formation needs political vision and a global media strategy owned by Indians and not outsourced to the western nation.

China has been helped in the last 20 years by the US and west in its economic capital vision.

paramu · Post by **paramu** » 31 Aug 2011 00:12

All world markets swing the way NY market swings. This was achieved through globalization, and global capital flows. If you want India to be independent of market swings in NY/LON, India has to delink from USD and say that they will trade only in gold. I don't think we (for that matter any country) have a leadership that has capability to do so.

svinayak · Post by **svinayak** » 31 Aug 2011 01:59

Financial market is a small part of the international trade for India. Trade is bigger but % of the world is small
Hence this can be handled.

Ambar · Post by **Ambar** » 31 Aug 2011 04:11

Christopher Sidor wrote:Hindu is running an article, dated 28-Aug-2011, about the crisis in the developed world

While it is a decent compendium of the issues facing the west, it does have a word of caution for India

I had expressed similar sentiments not so long ago. X-Posting my post from 'Indian Economy' thread :

Ambar wrote:Few recent headlines that caught my eyes suggests Indian economy may face some short term turbulence :

a) SBI's stunning drop in profit by 99+% due to higher interest rates but more worrying loan losses.
b) NASSCOM's statement that there has been a 21% drop in new tech projects of 25m$ or more.
c) Margin compression in Indian IT companies due to wage inflation and higher taxes. HCL's quarterly result was terrible.
d) NPAs of PSU have reached an astounding 80000 cr Rs! or ~20 billion $ and have indicated there is more to come.
e) Govt is in no mood to tackle deficit or the total debt.
f) Slump in auto sales for the month of July, and a lackluster sales so far this month.
g) A look at our yield curve of our gilts makes me scratch my head! We continue to flatten further, and curve could topple if there is another rate hike.
h) Except for arbitragers, the short term,mid-term and long term rates are all converging making it more attractive to be in short term bonds than long term bonds/equities.
g) The FII cumulative investment in both debt and equity instruments are the worst that i've seen since 2008 crisis. This should further erode stock prices where both indices are 22% lower than their post crisis highs.

The future,atleast the near term future may not be all that "shining" for Indian economy.

paramu · Post by **paramu** » 31 Aug 2011 23:40

X-post

Lisa wrote:The worlds first rusting gold discovered in China!

http://www.telegraph.co.uk/news/worldne ... -rust.html

Take any thirdparty unverifiable gold reserve/consumption data coming from china with a sack of rust.

Prem · Post by **Prem** » 01 Sep 2011 00:52

http://www.nytimes.com/reuters/2011/08/ ... .html?_r=1
Asia to Add 1.66 Million Millionaires by 2015: Study

HONG KONG (Reuters) - Asia will add 1.66 million dollar-millionaires by 2015, taking the total number of wealthy to 2.82 million as the world's fastest-growing major economies of China and India continue to mint millionaires, a report from Julius Baer said on Wednesday. The Swiss wealth manager forecast that the wealth of high networth individuals (HNIs), those with $1 million or more in investable assets, would nearly triple to $15.8 trillion in the five years to 2015. China alone would be home to nearly half of the millionaires in Asia with combined wealth of $8.8 trillion. The world's most populous nation had 502,000 million HNIs with investable assets totaling $2.6 trillion, the report said.

Prem · Post by **Prem** » 01 Sep 2011 01:48

The "Shining" Example Of Obama's $787 Billion Fiscal Stimulus Act, Solar Energy Company Solyndra, Files For Bankruptcy

Yesterday Zero Hedge contributor Bruce Krasting had some very insightful and very prophetic words when he asked rhetorically if a "Government investment disaster in the works??" The company in question is (now former) massively subsidized solar energy company Solyndra. Solyndra filed for bankruptcy less than 24 hours after Bruce proposed that the company is nothing but a stimulus black hole. We congratulate him on his investigative efforts. Alas, being private, there was no way to short it and capitalize on this investigative coup de grace. And while there are no winners, there are plenty of losers? Who - why US taxpayers of course. Why? Because as some may recall, Solyndra is one of the "shining examples" of Obama's $787 billion American Recovery and Reinvestment Act. After all none other than president Obama said that Solyndra is "leading the way toward a brighter and more prosperous future.” He also cited it as a success story from the government’s $787 billion economic stimulus package." Alas Solyndra has now become a less than shining example of the complete catastrophe this latest exercise in pointless Keynesianism has been, all on the backs of US taxpayers. But don't worry, Obama is about to bring us a fresh new such fiscal stimulus catastrohpe any minute. This time it will be different.

http://www.zerohedge.com/news/shining-e ... files-bank

Hari Seldon · Post by **Hari Seldon** » 01 Sep 2011 05:40

>>The "Shining" Example Of Obama's $787 Billion Fiscal Stimulus Act, Solar Energy Company Solyndra, Files For Bankruptcy

Are you sure it was $787 bn and not, say, $786 bn?? Just asking coz a packee might say they overspent by a billion and the almighty wasn't pleased only.... /sarc off

Neshant · Post by **Neshant** » 01 Sep 2011 14:46

--------------

The commentary in The New York Times, written by the newspaper's "DealBook" columnist Steven M. Davidoff, proposes that the U.S. Commodity Futures Trading Commission force commodity exchanges to raise margin requirements for gold trading to quash "speculation" in the monetary metal, and even "to limit the gold acquired individually and by the ETFs. All of these measures would have to be coordinated and put into effect on a global basis."

--------------------------

The commentary in The Wall Street Journal, written by David Malpass, a Treasury Department official during the Reagan administration, quotes former Federal Reserve Chairman Paul Volcker as having repeatedly declared gold to be "the enemy," something GATA Chairman Bill Murphy has cited about Volcker from time to time in his daily "Midas" column at LeMetropoleCafe.com. Malpass writes that "sound monetary policy will produce lower gold prices," which are desirable because "piling trillions into foreign countries, gold, and idle Treasury bonds sucks capital away from growth. The Fed should put an end to it."

--------------------------

^^^ My jaw fell open reading it. Not that i think banking crooks would ever succeed at it... but the lengths to which the useless middleman industry will go to loot us of our hard EARNED money to support their worthless hides is shocking indeed.

If there's anything that tells you what is real money and why they want to take it away from you, this is it !

Hari Seldon · Post by **Hari Seldon** » 01 Sep 2011 15:38

^^^ My jaw's tired of falling open. And I'm surprised you were shocked at the obvious. Its a jaded life here....yawn.

VikramS · Post by **VikramS** » 01 Sep 2011 21:23

HS:

The margin for the 100oz Gold contract which is worth $1820K is $8600, about 4.5%. This allows a speculator to leverage >20x their capital. This is what drives bubbles. An increase in margin is not necessarily bad since it will align the price with real demand and prevent wild swings in price. The margins are adjusted based on volatility but this month you could have exhausted your margin in a single day, the moves were so wild.

For most Indians, who hold physical gold, it would be better if the speculators are required to post much higher margins. That will reduce volatility an make sure we do not buy Gold at artificially inflated prices. BTW RBI's purchase of 200 tonnes from the IMF was timed wonderfully.

Volker of course was no Bernark. He made money very expensive and that is what started the decline in gold and the rise in paper assets which lasted for 20 years. Maybe another few years from now, we will at the same point when Gold becomes extremely stretched compared to paper assets and it will be time to shift back to paper. These cycles are generational...

Ambar · Post by **Ambar** » 01 Sep 2011 22:19

Oil - The blood of society,when it was trading at 157$/barrel in mid-2008 there were unheard howls to reign in on speculators.Mind you, this is a commodity that impact just about everyone who breathes no matter where they are.

Gold - Something that few can afford, and a commodity that most times never leaves a vault spikes and we have some folks here talking about jaws dropping because heavily leveraged speculators are further pushing the prices up and hurting capital formation that can be used to spur employment.

Hypocrisy apart,to add to what VikaramS has mentioned above, people who flip contracts,unless they take a physical delivery of the commodity cannot impact the material price. So the government trying to increase the margin requirement would hardly make a difference on the near term market price of gold. Commodity funds don't take physical delivery, and must sell their futures contracts before they expire. That's why the near-future price of Gold,like any other commodity cannot get too far away from the realities of physical market. No trader will pay above the price for a contract someone is trying to close and get out before expiration.

In reality, if the margin requirements are increased it can have the inverse impact of what the government is intending to do.Say if some London or Singapore based traders start taking physical delivery of the gold and strangle the market that can double the price of gold overnight. Don't believe me? That's exactly what Hunt Brothers did with silver in the 70s when they started taking massive amounts of physical delivery of silver quadrupling the price within a short period.

Prem · Post by **Prem** » 01 Sep 2011 23:10

leeches
A Private Note to Hedge-Fund Clients Gives a Strategist's View; Ways to Gain From Global Pain

top Goldman Sachs Group Inc. strategist has provided the firm's hedge-fund clients with a particularly gloomy economic outlook and suggestions for how these traders can take advantage of the financial crisis in Europe.In a 54-page report sent to hundreds of Goldman's institutional clients dated Aug. 16, Alan Brazil—a Goldman strategist who sits on the firm's trading desk—argued that as much as $1 trillion in capital may be needed to shore up European banks; that small businesses in the U.S., a past driver of job production, are still languishing; and that China's growth may not be sustainable

Prem · Post by **Prem** » 02 Sep 2011 02:22

http://www.bloomberg.com/news/2011-08-3 ... rseas.html
London Biggest Loser as Banks Look to Book Trades Overseas to Reduce Costs

Banks in Europe are exploring ways to cut costs by routing more of their trades and other business through overseas subsidiaries, a plan that may shift tax revenue away from London and loosen European regulators’ influence over the lenders. Nomura Holdings Inc., HSBC Holdings Plc (HSBA) and UBS AG (UBSN) are among lenders preparing plans to book as much business as possible through legal entities in jurisdictions where tax rates are lower and rules on capital and liquidity are less onerous, the banks and lawyers and accountants working with them say.

“Every bank is trying to work out the best way to be structured under the new rules,” Chris Matten, a partner at PricewaterhouseCoopers LLP in Singapore, said in a telephone interview. “It’s not just a question of what activities banks are in. It’s about which entities they put that business through and in which jurisdictions.” Banks could record as much as 30 percent of the value of their trades through Hong Kong, Singapore and other jurisdictions instead of hubs such as London and New York without running into trouble with regulators, Matten said. Such a move would hurt traditional hubs such as London because assets are treated for tax and regulatory purposes in the country where they are booked. It would also allow banks to sidestep the U.K. bank levy, introduced last year to raise 2.5 billion pounds ($4.1 billion) from lenders operating in Britain, as well as any financial transaction tax imposed by the European Union.
The U.K. financial-services industry contributed 53.4 billion pounds in taxes for the year to March 2010, accounting for 11.2 percent of the country’s tax income, according to a December 2010 report from the City of London Corporation, the financial center’s municipal government. That compares with 61.4 billion pounds the previous year and 67.8 billion pounds for the year to March 2007.

VikramS · Post by **VikramS** » 02 Sep 2011 03:42

Ambar:

The fact that most speculators do not want to take physical delivery is the key. Physical delivery offers zero leverage; further you have to pay for storage and protection. Because the size of the paper market dwarfs the size of the physical, it effectively becomes the pricing mechanism. Any differences are quickly arbed away.

The Hunt Brothers too finally suffered because of leverage. Their holdings of physical silver were dwarfed by their paper holdings and once position limits, and closing only transaction rules were applied to the paper market, they went BK.
http://themonetaryfuture.blogspot.com/2 ... sical.html
http://wealthcycles.com/features/the-hu ... -50-silver

Volcker raised interest rates to NEAR 20% and the price of Gold/Silver collapsed soon after, as inflation was shot. Of course no banker likes gold since its value reflects a lack of confidence in the fiat system. But a determined banker can also restore confidence.
http://en.wikipedia.org/wiki/Paul_Volcker

This Should Cheer Neshant Up wrote:Volcker has been known to defy the stereotype of a Wall Street insider. A profile in The Week magazine for February 5, 2010, claimed that Volcker doesn't even buy the conventional wisdom that "financial innovation" is necessary for a healthy economy. In fact, he likes to say, "the only useful banking innovation was the invention of the ATM."[32]

Ambar · Post by **Ambar** » 02 Sep 2011 06:05

You are missing the point here. The question is whether speculators are driving the price of gold up and can government stop them from doing so, and in my opinion the answer is "no" to both questions. The typical trader at CME will buy, say, the October future and then sell it days before it comes due - typically rolling over the proceeds into the next months contract.So if a guy speculating the direction of price puts a bet on it and wins, he makes money off someone who took a bet on the other end of that contract.How will this materially impact the market price of gold ? So if i start unloading my future contracts on gold at fire sale prices then gold should crash,no ? It wont. Its a commodity like any other commodity with supply and demand constraints. Government trying to reign on speculators will lead to Hunt brother like situations where they took 10% of world's silver produce creating supply scarcity pushing the prices astronomically higher.

Anyways, for the usual suspects who'll think this is another zionist-banker conspiracy theory to curb the price of their beloved gold, CFTC routinely pays attention to commodities that shoot through the roof and tries to come up with ways to avoid a bubble. They have done it with oil and corn among a few other in the past.

Prem · Post by **Prem** » 02 Sep 2011 08:34

Ambar wrote:Anyways, for the usual suspects who'll think this is another zionist-banker conspiracy theory to curb the price of their beloved gold, CFTC routinely pays attention to commodities that shoot through the roof and tries to come up with ways to avoid a bubble. They have done it with oil and corn among a few other in the past.

Last i heard CFTC had staff of about 45 people and work out of small office. There reputation exceeds that of Desi Babus in efficency and integrity.

VikramS · Post by **VikramS** » 02 Sep 2011 09:40

Ambar:

What speculators do is follow a trend driven by some kind of underlying cause. In this is the collapse of fiat currencies due to massive debt loads which is driving the flight towards Gold. However, how far prices go before they fall, is almost entirely determined by the actions of the speculators.

If you read the Hunt Brother's article you would notice that till the end they were looking for others to put new bids to keep the price of silver up.

The price of any instrument is determined by an auction, what we call the market. Markets move from a state of balance (where buyers and sellers agree it is a fair price and trade) to imbalance where prices continue to move in one direction, till they go far enough to attract new buyers (downtrend) or sellers (uptrend). Think of an auction where the price is bid up till there is no other buyer.

In the futures market there are real players like the miners who hedge their production by selling or consumers like jewelry makers who want certainty in pricing over a certain horizon. The rest are all speculators.

Trends become bubbles because the higher prices attract more trend following speculators. Other speculators feel that the price is too high and try to sell. But if every dip is bought by another speculator the prices keep on moving up, forcing the previous seller to cover, and pushing the prices higher.

Note that the speculator who sold is a naked short; he has no intention of delivering Gold. All he or she is interested in is to make a profit. And the guy long too is some kind of "naked" long; they too have no intention of paying $183K to get their 100Oz of gold; they are in it because they expect the trend to continue. And with futures giving up to 20x leverage, they follow the trend as long as they can, often with massive leverage. They buy high, in the hope of selling higher.

This process continues UNTIL, some longer time frame seller (like a miner) comes in to sell when they feel that the prices have gone high enough. At that point the speculators sense a change and exit. Depending on how far and how fast prices have moved up, you then have these spectacular falls, like the $100 single day decline we saw in Gold in August. Those decline happen as speculators liquidate.

If look at the chart of oil you would notice in August, it fell to almost $75/barrel before rising to $90. There was absolutely no fundamental reason; it was just a case of speculators liquidating and sending prices to an extreme which attracted buyers who pushed it back up.

Though the fundamental demand will win out in the long term, during the short term, it is the action of the speculators which pretty much determines price movement. They are the liquidity providers in this market.

shyam · Post by **shyam** » 02 Sep 2011 11:47

VikramS wrote:http://en.wikipedia.org/wiki/Paul_Volcker

Some people may find following information from the above link interesting

After leaving the Federal Reserve in 1987, he became chairman of the prominent New York investment banking firm, J. Rothschild, Wolfensohn & Co., a corporate advisory and investment firm in New York, run by James D. Wolfensohn, who later became president of the World Bank.

Neshant · Post by **Neshant** » 02 Sep 2011 12:27

Oil - The blood of society,when it was trading at 157$/barrel in mid-2008 there were unheard howls to reign in on speculators.Mind you, this is a commodity that impact just about everyone who breathes no matter where they are.

Gold - Something that few can afford, and a commodity that most times never leaves a vault spikes and we have some folks here talking about jaws dropping because heavily leveraged speculators are further pushing the prices up and hurting capital formation that can be used to spur employment.

The useless middleman industry can`t stand physical gold because it puts an end to their racket of skimming wealth from productive society through what is blatant fraud.

That being said, gold has 1 important property that oil does not. It is portable wealth. It can be hidden away from the useless middleman industry who`s objective it is to bamboozle productive society into paper money - and then rob people of their wealth.

The one good thing about the 2008 crash is that all pretences by the useless middleman industry to feign expertise on what ails the economy & how to fix it looks idiotic in hindsight. If anything, people have woken up to the notion that what ails the economy is in fact the useless middleman industry itself.

As for capital formation, it can only come from productive work & savings. Its downright silly that jokers from the useless middleman industry who`ve never worked a productive job in their lives, never produced anything of value, only subsisted off the energies of the working class through fraud & counterfeiting money..etc should tell the productive how their wealth should be squandered for the benefit of the economy. Really they are just after a nice cut of that money regardless of where the economy goes. Get your hand out of the pot!

The productive economy does not need the `guidance`of these hustlers. They seriously need to get real jobs.

Ambar · Post by **Ambar** » 02 Sep 2011 20:54

'Real jobs' are not created out of thin air, it requires capital formation, and that capital to be liquid and not remain locked in treasuries or gold.

VikramS : Columbia University had done a significant research on the role of speculators in commodities market. I'll dig up the paper and post it here. There are too many reasons why a commodity price goes up or down.Supply side constraints, inflationary/deflationary monetary policies, political-economic imbalances etc. Speculators are the first to be targeted by the press and government as they are the only "visible tangible" entity.

Neshant · Post by **Neshant** » 02 Sep 2011 22:22

Gold is real money and its accumulation is capital formation.

Money counterfeiting and the existance of the useless middleman industry stealing from the productive and fiddling around with the economy is the inverse of capital formation. Its capital destruction.

In recent times, the fiddling has laid waste to the fortunes of entire nations.

Its no co-incidence that as the useless middleman industry has expanded from 2000 onwards, the real economy has contracted.

Prem · Post by **Prem** » 02 Sep 2011 23:32

http://online.wsj.com/article/SB1000142 ... 47248.html
In Africa, U.S. Watches China's Rise

As China burrows into local economies, leaders from South Africa to Ethiopia have been touting its model for development—one that stresses state-led growth, validates tight-fisted political control and offers a powerful counterpoint to the free-market democracy mantra promoted by the U.S.The embrace of China in Africa's capitals stands in contrast with complaints also voiced around the continent about Chinese firms' treatment of workers and concerns over some companies' environmental records.In Zimbabwe, even opponents of President Robert Mugabe welcome China's focus on commerce that doesn't link aid to politics. 17, 2010."China's model is telling us you can be successful without following the Western example," said deputy prime minister Arthur Mutambara, a member of an opposition party locked in awkward coalition with Mr. Mugabe, who has deep ties with Beijing.

( My Hunch is Africa is gonna resembles new Gold Rush within a decade, Get in there folks) abe

Airavat · Post by **Airavat** » 03 Sep 2011 07:08

Europe Alarmed as Italy’s Austerity Plans Unravel

The Berlusconi government announced the new measures in mid-August, promising to eliminate the budget deficit by 2013, a year earlier than planned, in exchange for the European Central Bank buying Italian debt to help reduce the country’s borrowing costs and stave off a debt crisis. Exactly what those measures are, however, has become a moving target, with the government backing away from steps it once called crucial. The final bill is expected to be put to a vote in the Senate next week and the Lower House the following week.

In recent weeks, the government called off a proposed “solidarity tax” on those who earn more than 90,000 euros a year, the equivalent of about $127,800, after opposition from lawmakers within the center-right coalition who feared it would damage their supporters. And after complaints from local politicians, it also reduced the proposed cuts to financing for local governments by 1.8 billion euros.

On Monday, after a daylong meeting with his ministers, Mr. Berlusconi announced that Italy would reach its budget-cutting goal by not allowing Italians to include their time in universities or once-mandatory military service in the 40 years of social security contributions required to be eligible for a state pension. But he dropped the proposal two days later, after protests by the center-left opposition and labor unions.

VikramS · Post by **VikramS** » 03 Sep 2011 11:30

Ambar:
1. I will throw any university research on price movement in to a shredder unless it is lead by people who have years of experience trading in that area.

2. As I wrote in the previous post, the price of oil has fluctuated by almost 20% in August with no radical change in the global scale to justify that. Similarly the $100 drop in Gold in a single pit session (which has since recovered)

3. In any securities market it is the short term traders, speculators by definition, who provide liquidity.

A key issue you need to keep in mind is time-frames, and orders of magnitude. Fundamentals of supply/demand, cost of production, inflation etc. are useful for guiding the average price over a significant period of time (order of years).

However on shorter time-frames it is primarily trading (speculators) who determine price.

During the run to $147 in oil, traders were told by GS to keep buying. They were coming with wild targets ($150, $200, $250 in 12 months). As it turned out all along they were trying to squeeze a company called Sem Group. And during that period the "Useless Middleman Industry" was printing research report after research report talking about peak oil, ghost Saudi oil fields and what not. Oil dropped almost 80% to 30s within a year.

http://www.forbes.com/forbes/2009/0413/ ... e-oil.html

From the Horse's Mouth wrote:Traders say that in the days leading up to the $147 peak on July 12 there was the smell of blood in the water. "We just kept bidding the market higher," one trader says.

===

Neshant: Gold is nothing but another element which is valued because it is
(i) Rare
(ii) Is one of the least reactive metals & does not rust or dissolve (even in acids)
(iii) Shines (so women like it).

You can convert Mercury into Gold too http://en.wikipedia.org/wiki/Synthesis_ ... etals#Gold

The argument against the Gold Standard are numerous; it puts an artificial limit on the human ability to harvest innovations. There are a lot of countries who issue and use fiat in a responsible manner, so the problems do not originate with fiat. The problems originate with the abuse of the fiat system.

Singha · Post by **Singha** » 03 Sep 2011 12:26

http://money.cnn.com/2011/09/02/news/ec ... ?hpt=hp_t2

black unemployment rate in US highest in 27 yrs

btw do gurus think given the august jobs data the US is slipping slowly into another recession?

Zynda · Post by **Zynda** » 03 Sep 2011 14:20

GD,
Not certainly a guru and quite under informed to provide an appropriate response to your question

, but I received this link via email about job situation in Bay Area for IT folks.

Hiring like its 1999 : http://www.businessweek.com/technology/ ... 12011.html

Edit: Removed formatting & just pasted the link. Shd be working now

Hari Seldon · Post by **Hari Seldon** » 03 Sep 2011 14:41

Don't know too many who continue to retain full faith and trust in BLS or any other gubmint agency numbers any longer. However, the numbers still matter because they're like the only ones out there only (unless you wanna go by John Williams' shadowstats).

In any case, mere labels like 'another recession' etc are unhelpful at this point, perhaps. NBER will call an official recession when it sees one in the rear mirror. Till then the smoke and mirrors games can continue. The biggest problem as I saw it in the shining city on the hill was unpunished fraud. On a scale that beggars anything I'd imagined about the land of the free and all that. Unpunished fraud is a crime against gawd and man. It'll return to purchase the legislative and criminal-justice process and sap out any and all hopes of sustainable recovery going forward. Fraud is after all, a confidence game, like Jesse says. We'll soon find out what happens when said confidence rushes to erode only.

Anyway, now the topmost concern isn't fraud as much as the outcomes of the fraud. Unemployment, jobs are the number 1 item. And I don't see how anyone in DC is gonna set that right in a hurry.