Welcome to the Century Mining Blog.
This blog is open for viewing to the general public, but posting is restricted to Blog Members. If you wish to become a Blog Member send an email request to centurycarib@gmail.com.
Comments by the viewing public has been reinstated.
Check out the Information Links down the right-hand side.
I guess they are only 160,572 shares away from the 4,297,572 total of financing #4 (discussed in a recent post). They are 361,572 shares away from the flow-through component of financing #5.
Hopefully the GMP sellers are from 1 of these 2 financings. As discussed, they are likely from either financing #4 or #5, but not likely from both. If such is the case then their share position will likely be depleted soon.
I guess, it's not really going to matter much if Peggy is able to come up with the financing. Hopefully the $1,000 US gold price makes a very compelling case of what the future will look like.
Our Lamaque ounces should be worth a lot more than $880 US in a couple/few years. Inflation is coming - it's just a matter of time. The magnitude of the paper currencies being injected (and still to be injected) into the global system is nothing like the world has ever seen before. The people that think that inflation will be avoided by governments by quickly squeezing the money of out of the system (once the economy picks up) - via tightening credit, interest rate increases, etc. - either did not look at the stats coming out of the great depression or are just fooling themselves:
1) Inflation (FDR had put some initiatives in place to help stabilize the situation effective around April 1933) results:
*March 1933 - negative 10.0% inflation
*July 1933 - negative 3.56% inflation
*November 1933 - zero % inflation
*March 1934 - positive 5.56% inflation
As you can see, it took almost no time for inflation to flood the system once things began to stabilize during the great depression. Just imagine what will happen this time around, as this time it will be on a global scale (everyone on earth will be impacted) and the money supply has increased/will be increased to unimaginable levels. We are looking at a potentially unavoidable financial tsunami.
2) Unemployment - the unemployment rate in the U.S. was 7.6%, which may still seem low relative to the great depression. However, sadly, it doesn't include the massive recent layouts and the significant job losses expected for the next couple of years. In addition, my understanding is that the current unemployment calculation excludes people unemployed for greater than 1 year (which was not backed out of the percentages calculated during the great depression). As such, some people think that the 7.6% unemployment rate is not the true rate, and would be much higher if the previous calculation was applied.
Anyway, any calculation used, sadly, the unemployment rate will be much higher before it's all said and done.
Take a look at the lack of significant change in the unemployment rate even after the great depression was stabilized in 1933:
As you can see from the percentages, with this type of major damage done to the system, one cannot just push a button and expect all those jobs to come back instantly. It's not logical. The only reason the unemployment rate came back down to pre-depression levels was World War 2, as terrible as that is.
With regards to our current situation, even if the governments could pull a lot of the huge money supply quickly out of system (once the economy stabilizes), which leader in his/her right mind would even attempt this given the length of time that is required to get people back to work?
Inflation coming at some point down the road. Institutional investors that buy Lamaque ounces for $880 US will be positioned well to benefit from this (never mind the short and long term benefits of the share price).
Article: Soros sees no bottom for world financial "collapse"
Sat Feb 21, 2009 4:19pm EST
NEW YORK (Reuters) - Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.
Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.
He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system.
"We witnessed the collapse of the financial system," Soros said at a Columbia University dinner. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom."
His comments echoed those made earlier at the same conference by Paul Volcker, a former Federal Reserve chairman who is now a top adviser to President Barack Obama.
Volcker said industrial production around the world was declining even more rapidly than in the United States, which is itself under severe strain.
"I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world," Volcker said.
(Reporting by Pedro Nicolaci da Costa and Juan Lagorio; Editing by Gary Hill)
Article: Roubini Says Europe Bank Risks Becoming ‘More Severe’ (Update2)
By Timothy R. Homan and Erik Schatzker
Feb. 20 (Bloomberg) -- Europe’s banking system faces growing risks because of losses in the region’s emerging markets, and the crisis may require a region-wide rescue effort, said New York University economist Nouriel Roubini.
“The banking problem in Europe is becoming more severe,” Roubini said in a Bloomberg Television interview. “You have a series of countries that are really in trouble,” Roubini said, citing Latvia, Estonia, Lithuania, Hungary, Belarus and Ukraine.
German and French officials this week expressed concern about a slide in investor confidence in smaller European economies. The cost of insuring Irish, Greek and Spanish debt against default has climbed to records, and mounting losses in eastern Europe among Austrian banks sent that nation’s bond-yield premiums to an unprecedented level.
European lenders are taking steps that could increase state control of banks as the recession deepens. German Chancellor Angela Merkel’s cabinet approved draft legislation this week that allows for the takeover of Hypo Real Estate Holding AG, which would be the first German bank nationalization since the 1930s.
The continent’s largest financial companies have reported $316 billion in writedowns and credit-related losses since the collapse of the U.S. subprime mortgage market in 2007 spread to other asset classes and continents. The market turmoil has forced European lenders to raise $370 billion in fresh capital and government-led bailouts from London to Zurich to Berlin, according to Bloomberg data.
EU Aid
Roubini said European nations may go further and assist member states that are unable to rescue their own banks. “Even the European Union now is thinking of helping those sovereigns and their banking systems,” he said.
“There are significant problems in terms of debt and also banking problems in places like Ireland, for example,” Roubini said. “But also a country like Greece has a huge amount of stock of public debt.”
Moody’s Investors Service Inc. on Feb. 17 said some of Europe’s largest banks may be downgraded because of loans to eastern Europe, sending Italy’s UniCredit SpA, which has aggressively expanded in the region, to its lowest in 12 years.
‘Pressure’ on Ratings
Moody’s sees “continuous downward rating pressure” in the region as a result of worsening asset quality and western banks’ reliance on short-term funding, the ratings company said in a report.
The International Monetary Fund has offered aid worth about $52 billion to Latvia, Hungary, Serbia and Ukraine.
Roubini, who predicted the global credit crisis, also discussed the need for plans to revive growth. The best approach in the euro zone is “fiscal stimulus in the short term but fiscal consolidation over the medium term,” he said.
He noted that while the $787 billion U.S. fiscal stimulus package, signed into law this week by President Barack Obama, is necessary, it may not be sufficient and will put the country deeper into debt.
“We’re going to add $4 trillion to $5 trillion to the public debt over the next few years,” he said. “Down the line, maybe two or four years, there may be a downgrade of even the United States.”
Still, he said, the U.S. is taking appropriate steps compared with other economies. He said the European Central Bank and Japan are “behind the curve.”
1) "Policy makers are seeking permission from the government to move to so-called quantitative easing by creating money to buy securities. Bank of England Deputy Governor John Gieve said yesterday officials are battling a risk that the economy faces a depression on the scale that Japan experienced in the 1990s."
2) "'Do we face a 10-year depression like Japan? That is a risk, and a risk that we and other policy makers are taking very seriously,' Gieve said late yesterday after a speech at the London School of Economics. 'It’s a serious risk but we are addressing it. There’s a huge amount of policy easing in the pipeline. I don’t think it’s inevitable.'"
3) "He said that the bank will probably start so-called quantitative easing in the next few weeks to increase money supply."
The article: BOE Buys 340 Million Pounds of Commercial Paper (Update2)
By Jennifer Ryan and Neil Unmack
Feb. 20 (Bloomberg) -- The Bank of England said it bought 340 million pounds ($486 million) of commercial paper in the first week of its Asset Purchase facility as policy makers try to unblock credit markets.
“The amount may sound small but the fact it was used at all is a positive sign,” said David Tinsley, an economist at National Australia Bank in London.
The bank bought the assets through the 50 billion-pound program, which is financed by the U.K. Treasury. The rates top- rated companies pay through the plan is about 30 basis points less than in the commercial paper market, said Matthew Tatnell, deputy head of liquidity funds at Aviva Investors in London.
Policy makers are seeking permission from the government to move to so-called quantitative easing by creating money to buy securities. Bank of England Deputy Governor John Gieve said yesterday officials are battling a risk that the economy faces a depression on the scale that Japan experienced in the 1990s.
The size of the purchases “does highlight that pursuing quantitative easing through the commercial paper market will be difficult, and to get a decent scale will require government debt purchases,” Tinsley said.
The purchases are for the week ending Feb. 19, the bank said, without revealing which companies have used the program. Companies are charged 75 to 300 basis points more than a benchmark rate, set today at 0.58 percent.
Market Slump
The market for commercial paper, short-term IOUs sold by companies, slumped during the credit crisis as investors shunned all but the safest government debt. Tatnell said the Bank of England’s program should help boost the supply of commercial paper from companies.
“There should be a progressive increase in outstandings as people register and it starts to take effect,” he said, adding that today’s amount is “pretty much in line with what we expected.”
The Confederation of British Industry has called on Prime Minister Gordon Brown to act quickly to revive lending as the credit squeeze forces companies to cut jobs and pare investment.
The economy will shrink at almost twice the pace previously forecast this year, as the country endures its worst recession in almost 30 years, the CBI said this week. It said gross domestic product will contract 3.3 percent.
“Do we face a 10-year depression like Japan? That is a risk, and a risk that we and other policy makers are taking very seriously,” Gieve said late yesterday after a speech at the London School of Economics. “It’s a serious risk but we are addressing it. There’s a huge amount of policy easing in the pipeline. I don’t think it’s inevitable.”
He said that the bank will probably start so-called quantitative easing in the next few weeks to increase money supply. Central bank Governor Mervyn King and Chancellor of the Exchequer Alistair Darling are to exchange letters soon detailing the procedure.
Nouriel Roubini, the New York University professor who predicted the global credit crisis, said a government-backed bank ''may crack'' as officials try to bail out their financial systems.
''The process of socializing the private losses from this crisis has already moved many of the liabilities of the private sector onto the books of the sovereign,'' Roubini wrote on his Web site today. ''At some point a sovereign bank may crack, in which case the ability of the governments to credibly commit to act as a backstop for the financial system -- including deposit guarantees -- could come unglued.''
Roubini didn't identify any sovereign bank that might run into difficulty.
He also said he sees a 30% chance of an ''L-shaped near-depression'' without ''appropriate and aggressive policy action'' by the US and other major economies to prevent a sovereign bank's failure.
The latest data indicate fourth-quarter gross domestic product in key economies including the US, the euro zone and Japan may be worse than initially reported.
''The global economy is now literally in free fall as the contraction of consumption, capital spending, residential investment, production employment, exports and imports is accelerating rather than decelerating,'' Roubini said.
The protracted downturn Roubini warned of can only be prevented by ``a strong, aggressive, coherent and credible combination of monetary easing (traditional and unorthodox), fiscal stimulus, proper clean-up of the financial system and reduction of the debt burden of insolvent private agents (households and non-financial companies),'' he said.
Open interest in options (that allows the holder to buy gold at $1,000 US by April):
*start of year - 8,005 (gold around $870 US at the time) *Feb 6 - 9,934 (gold around $910 US at the time) *Feb 20 - 10,024 (futures price at $995 US)
The open interest increased by 25%, although the gold price increased by 14%.
I don’t follow the options market very closely, but I have heard that this profile is a fundamental difference versus the first time gold ran up to $1,000 US (March 2008). I don’t have stats for last year, but I’ve heard that the inverse pattern existed last time. Meaning, open interest fell considerably as gold ran up to $1,000 US. As you can see this time around, open interest is rising as the gold price is rising.
It’s clear that the rise last year was driven by speculative hedge funds that were in it to make a quick buck or two. Aside from the positive open interest situation this year, there appears to be other fundamental differences:
1) The gold price is moving sharply this year also, but you get the sense that it is more under control, and more thought process behind the moves – the pattern has been to move forward about $20 then pull back for $10, before moving forward for another $20.
2) It’s obvious that short-term fears and long-term inflation expectations, and currency devaluations, are the drivers – as oppose to strictly fast (momentum) money like last year. The objective this time is likely almost entirely protection of capital (both short-term and long-term), as oppose to making a quick dollar.
As we all clearly know, gold is prone to volatile short-term corrections at anytime. However, the points I have highlighted above appears to suggest that the gold price move back to $1,000 US maintains a lot of substance, and is potentially supported at this particular moment.
As we all know, it’s a scary world right now. There are a number of “on the verge” type situations that could trigger the next severe global panic (and possibly push gold to $1,100 US):
1) If one of the central banks fail (i.e. from one of the countries currently in deep trouble) – there is talk of this.
2) If IMF runs out of cash and is unable to provide basic life support to the countries in trouble – even now, there are too many countries for the IMF to bail out already (also, IMF is already low on cash).
3) If the rest of the world is unable to find a solution to save the East European countries, and Austria, Swiss, Italy, etc. – the magnitude of a collapse like this might be unprecedented.
4) If another big US bank goes under.
5) If one (or more) of the US banks get nationalized – currently, the comments out of the congress and the senate are mixed, but some are talking that this is a possibility. I think they will have no choice but to national key US banks (Citi, Bank of America, etc.) if the economy continues to deteriorate at a rapid pace or once they realize other options are not working. At that stage, all options will be on the table, and nationalizing the banks will be the first move, in order for the government to take control of the lending situation.
6) if a (“too big to fail”) company like GE actually does fail, or at least takes a major hit - It’s stock price is now trading below $10 for the first time (at least in a long time) and the rumours are that it is going to lose its Triple-A ratings from Moody’s and/or S&P. There is also speculation that it might cut its dividend.
7) England appears to be in trouble – they will likely feel major pain, but are unlikely to default on anything major (but who knows, right?).
8) Russia has currency issues, but I think they still have some capital reserves (although falling fast). Citizens are afraid of a situation similar to the 90s - back in 1998, the country let the ruble plunge, defaulted on debt and millions of people’s savings were wiped out.
9) Germany might become a country to watch down the road, as it is one of Europe’s strongest economies. Some people believe that Germany could be in worst shape than we can see.
10) If major (unsolvable) fractures in the European Union materializes, and perhaps even leading to separation of Union members or a complete end to the Union. These scenarios are unlikely, but there will be some serious challenges facing the Union in the near future, nevertheless. Their structure does not appear to be ideal to handle this current (unprecedented) crisis, IMO. Anything is possible.
'global economy may take as long as 10 years to return to the peak level reached in 2006,'
"He also said gold is likely to outperform U.S. stocks over the next five to 10 years, and that he is increasing investments in the metal."
The article: Faber Sees Global Economy Taking 10 Years to Recover, SCMP Says
By Tom Kohn
Feb. 15 (Bloomberg) -- Marc Faber, the investor known as Dr. Doom, said the global economy may take as long as 10 years to return to the peak level reached in 2006, the South China Morning Post said, citing an interview.
“The crisis won’t be over anytime soon,” Faber said, according to the report. Still, interest-rate cuts may cause a short-term jump for stocks, including a leap of as much as 30 percent in Hong Kong within three months, he added. In the second half, equities will likely fall again amid the slowdown, he added.
Commodities have “a very strong rebound potential” over the next few years, Faber said, citing silver, platinum and palladium as investments to consider. He also said gold is likely to outperform U.S. stocks over the next five to 10 years, and that he is increasing investments in the metal.
Technology companies, such as Intel Corp., Cisco Systems Inc., Oracle Corp. and Microsoft Corp., also look “quite interesting,” Faber added. Still, investors shouldn’t have more than 15 percent of assets in equities at the moment, said Faber, who also publishes the “Gloom, Boom & Doom Report.”
7 comments:
thanks Carib
I guess they are only 160,572 shares away from the 4,297,572 total of financing #4 (discussed in a recent post). They are 361,572 shares away from the flow-through component of financing #5.
Hopefully the GMP sellers are from 1 of these 2 financings. As discussed, they are likely from either financing #4 or #5, but not likely from both. If such is the case then their share position will likely be depleted soon.
I guess, it's not really going to matter much if Peggy is able to come up with the financing. Hopefully the $1,000 US gold price makes a very compelling case of what the future will look like.
Our Lamaque ounces should be worth a lot more than $880 US in a couple/few years. Inflation is coming - it's just a matter of time. The magnitude of the paper currencies being injected (and still to be injected) into the global system is nothing like the world has ever seen before. The people that think that inflation will be avoided by governments by quickly squeezing the money of out of the system (once the economy picks up) - via tightening credit, interest rate increases, etc. - either did not look at the stats coming out of the great depression or are just fooling themselves:
1) Inflation (FDR had put some initiatives in place to help stabilize the situation effective around April 1933) results:
*March 1933 - negative 10.0% inflation
*July 1933 - negative 3.56% inflation
*November 1933 - zero % inflation
*March 1934 - positive 5.56% inflation
As you can see, it took almost no time for inflation to flood the system once things began to stabilize during the great depression. Just imagine what will happen this time around, as this time it will be on a global scale (everyone on earth will be impacted) and the money supply has increased/will be increased to unimaginable levels. We are looking at a potentially unavoidable financial tsunami.
2) Unemployment - the unemployment rate in the U.S. was 7.6%, which may still seem low relative to the great depression. However, sadly, it doesn't include the massive recent layouts and the significant job losses expected for the next couple of years. In addition, my understanding is that the current unemployment calculation excludes people unemployed for greater than 1 year (which was not backed out of the percentages calculated during the great depression). As such, some people think that the 7.6% unemployment rate is not the true rate, and would be much higher if the previous calculation was applied.
Anyway, any calculation used, sadly, the unemployment rate will be much higher before it's all said and done.
Take a look at the lack of significant change in the unemployment rate even after the great depression was stabilized in 1933:
*1928 - 4.2% unemployed
*1930 - 8.7%
*1932 - 23.6%
*1934 - 21.7%
*1936 - 16.9%
*1938 - 19.0%
*1940 - 14.6%
*1942 - 4.7%
*1944 - 1.2%
As you can see from the percentages, with this type of major damage done to the system, one cannot just push a button and expect all those jobs to come back instantly. It's not logical. The only reason the unemployment rate came back down to pre-depression levels was World War 2, as terrible as that is.
With regards to our current situation, even if the governments could pull a lot of the huge money supply quickly out of system (once the economy stabilizes), which leader in his/her right mind would even attempt this given the length of time that is required to get people back to work?
Inflation coming at some point down the road. Institutional investors that buy Lamaque ounces for $880 US will be positioned well to benefit from this (never mind the short and long term benefits of the share price).
Article: Soros sees no bottom for world financial "collapse"
Sat Feb 21, 2009 4:19pm EST
NEW YORK (Reuters) - Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.
Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.
He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system.
"We witnessed the collapse of the financial system," Soros said at a Columbia University dinner. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom."
His comments echoed those made earlier at the same conference by Paul Volcker, a former Federal Reserve chairman who is now a top adviser to President Barack Obama.
Volcker said industrial production around the world was declining even more rapidly than in the United States, which is itself under severe strain.
"I don't remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world," Volcker said.
(Reporting by Pedro Nicolaci da Costa and Juan Lagorio; Editing by Gary Hill)
Article: Roubini Says Europe Bank Risks Becoming ‘More Severe’ (Update2)
By Timothy R. Homan and Erik Schatzker
Feb. 20 (Bloomberg) -- Europe’s banking system faces growing risks because of losses in the region’s emerging markets, and the crisis may require a region-wide rescue effort, said New York University economist Nouriel Roubini.
“The banking problem in Europe is becoming more severe,” Roubini said in a Bloomberg Television interview. “You have a series of countries that are really in trouble,” Roubini said, citing Latvia, Estonia, Lithuania, Hungary, Belarus and Ukraine.
German and French officials this week expressed concern about a slide in investor confidence in smaller European economies. The cost of insuring Irish, Greek and Spanish debt against default has climbed to records, and mounting losses in eastern Europe among Austrian banks sent that nation’s bond-yield premiums to an unprecedented level.
European lenders are taking steps that could increase state control of banks as the recession deepens. German Chancellor Angela Merkel’s cabinet approved draft legislation this week that allows for the takeover of Hypo Real Estate Holding AG, which would be the first German bank nationalization since the 1930s.
The continent’s largest financial companies have reported $316 billion in writedowns and credit-related losses since the collapse of the U.S. subprime mortgage market in 2007 spread to other asset classes and continents. The market turmoil has forced European lenders to raise $370 billion in fresh capital and government-led bailouts from London to Zurich to Berlin, according to Bloomberg data.
EU Aid
Roubini said European nations may go further and assist member states that are unable to rescue their own banks. “Even the European Union now is thinking of helping those sovereigns and their banking systems,” he said.
“There are significant problems in terms of debt and also banking problems in places like Ireland, for example,” Roubini said. “But also a country like Greece has a huge amount of stock of public debt.”
Moody’s Investors Service Inc. on Feb. 17 said some of Europe’s largest banks may be downgraded because of loans to eastern Europe, sending Italy’s UniCredit SpA, which has aggressively expanded in the region, to its lowest in 12 years.
‘Pressure’ on Ratings
Moody’s sees “continuous downward rating pressure” in the region as a result of worsening asset quality and western banks’ reliance on short-term funding, the ratings company said in a report.
The International Monetary Fund has offered aid worth about $52 billion to Latvia, Hungary, Serbia and Ukraine.
Roubini, who predicted the global credit crisis, also discussed the need for plans to revive growth. The best approach in the euro zone is “fiscal stimulus in the short term but fiscal consolidation over the medium term,” he said.
He noted that while the $787 billion U.S. fiscal stimulus package, signed into law this week by President Barack Obama, is necessary, it may not be sufficient and will put the country deeper into debt.
“We’re going to add $4 trillion to $5 trillion to the public debt over the next few years,” he said. “Down the line, maybe two or four years, there may be a downgrade of even the United States.”
Still, he said, the U.S. is taking appropriate steps compared with other economies. He said the European Central Bank and Japan are “behind the curve.”
Last Updated: February 20, 2009 11:41 EST
Quotes:
1) "Policy makers are seeking permission from the government to move to so-called quantitative easing by creating money to buy securities. Bank of England Deputy Governor John Gieve said yesterday officials are battling a risk that the economy faces a depression on the scale that Japan experienced in the 1990s."
2) "'Do we face a 10-year depression like Japan? That is a risk, and a risk that we and other policy makers are taking very seriously,' Gieve said late yesterday after a speech at the London School of Economics. 'It’s a serious risk but we are addressing it. There’s a huge amount of policy easing in the pipeline. I don’t think it’s inevitable.'"
3) "He said that the bank will probably start so-called quantitative easing in the next few weeks to increase money supply."
The article: BOE Buys 340 Million Pounds of Commercial Paper (Update2)
By Jennifer Ryan and Neil Unmack
Feb. 20 (Bloomberg) -- The Bank of England said it bought 340 million pounds ($486 million) of commercial paper in the first week of its Asset Purchase facility as policy makers try to unblock credit markets.
“The amount may sound small but the fact it was used at all is a positive sign,” said David Tinsley, an economist at National Australia Bank in London.
The bank bought the assets through the 50 billion-pound program, which is financed by the U.K. Treasury. The rates top- rated companies pay through the plan is about 30 basis points less than in the commercial paper market, said Matthew Tatnell, deputy head of liquidity funds at Aviva Investors in London.
Policy makers are seeking permission from the government to move to so-called quantitative easing by creating money to buy securities. Bank of England Deputy Governor John Gieve said yesterday officials are battling a risk that the economy faces a depression on the scale that Japan experienced in the 1990s.
The size of the purchases “does highlight that pursuing quantitative easing through the commercial paper market will be difficult, and to get a decent scale will require government debt purchases,” Tinsley said.
The purchases are for the week ending Feb. 19, the bank said, without revealing which companies have used the program. Companies are charged 75 to 300 basis points more than a benchmark rate, set today at 0.58 percent.
Market Slump
The market for commercial paper, short-term IOUs sold by companies, slumped during the credit crisis as investors shunned all but the safest government debt. Tatnell said the Bank of England’s program should help boost the supply of commercial paper from companies.
“There should be a progressive increase in outstandings as people register and it starts to take effect,” he said, adding that today’s amount is “pretty much in line with what we expected.”
The Confederation of British Industry has called on Prime Minister Gordon Brown to act quickly to revive lending as the credit squeeze forces companies to cut jobs and pare investment.
The economy will shrink at almost twice the pace previously forecast this year, as the country endures its worst recession in almost 30 years, the CBI said this week. It said gross domestic product will contract 3.3 percent.
“Do we face a 10-year depression like Japan? That is a risk, and a risk that we and other policy makers are taking very seriously,” Gieve said late yesterday after a speech at the London School of Economics. “It’s a serious risk but we are addressing it. There’s a huge amount of policy easing in the pipeline. I don’t think it’s inevitable.”
He said that the bank will probably start so-called quantitative easing in the next few weeks to increase money supply. Central bank Governor Mervyn King and Chancellor of the Exchequer Alistair Darling are to exchange letters soon detailing the procedure.
Last Updated: February 20, 2009 06:53 EST
Roubini warns of 'sovereign' bank failure
February 20, 2009
Nouriel Roubini, the New York University professor who predicted the global credit crisis, said a government-backed bank ''may crack'' as officials try to bail out their financial systems.
''The process of socializing the private losses from this crisis has already moved many of the liabilities of the private sector onto the books of the sovereign,'' Roubini wrote on his Web site today. ''At some point a sovereign bank may crack, in which case the ability of the governments to credibly commit to act as a backstop for the financial system -- including deposit guarantees -- could come unglued.''
Roubini didn't identify any sovereign bank that might run into difficulty.
He also said he sees a 30% chance of an ''L-shaped near-depression'' without ''appropriate and aggressive policy action'' by the US and other major economies to prevent a sovereign bank's failure.
The latest data indicate fourth-quarter gross domestic product in key economies including the US, the euro zone and Japan may be worse than initially reported.
''The global economy is now literally in free fall as the contraction of consumption, capital spending, residential investment, production employment, exports and imports is accelerating rather than decelerating,'' Roubini said.
The protracted downturn Roubini warned of can only be prevented by ``a strong, aggressive, coherent and credible combination of monetary easing (traditional and unorthodox), fiscal stimulus, proper clean-up of the financial system and reduction of the debt burden of insolvent private agents (households and non-financial companies),'' he said.
Bloomberg News
Open interest in options (that allows the holder to buy gold at $1,000 US by April):
*start of year - 8,005 (gold around $870 US at the time)
*Feb 6 - 9,934 (gold around $910 US at the time)
*Feb 20 - 10,024 (futures price at $995 US)
The open interest increased by 25%, although the gold price increased by 14%.
I don’t follow the options market very closely, but I have heard that this profile is a fundamental difference versus the first time gold ran up to $1,000 US (March 2008). I don’t have stats for last year, but I’ve heard that the inverse pattern existed last time. Meaning, open interest fell considerably as gold ran up to $1,000 US. As you can see this time around, open interest is rising as the gold price is rising.
It’s clear that the rise last year was driven by speculative hedge funds that were in it to make a quick buck or two. Aside from the positive open interest situation this year, there appears to be other fundamental differences:
1) The gold price is moving sharply this year also, but you get the sense that it is more under control, and more thought process behind the moves – the pattern has been to move forward about $20 then pull back for $10, before moving forward for another $20.
2) It’s obvious that short-term fears and long-term inflation expectations, and currency devaluations, are the drivers – as oppose to strictly fast (momentum) money like last year. The objective this time is likely almost entirely protection of capital (both short-term and long-term), as oppose to making a quick dollar.
As we all clearly know, gold is prone to volatile short-term corrections at anytime. However, the points I have highlighted above appears to suggest that the gold price move back to $1,000 US maintains a lot of substance, and is potentially supported at this particular moment.
As we all know, it’s a scary world right now. There are a number of “on the verge” type situations that could trigger the next severe global panic (and possibly push gold to $1,100 US):
1) If one of the central banks fail (i.e. from one of the countries currently in deep trouble) – there is talk of this.
2) If IMF runs out of cash and is unable to provide basic life support to the countries in trouble – even now, there are too many countries for the IMF to bail out already (also, IMF is already low on cash).
3) If the rest of the world is unable to find a solution to save the East European countries, and Austria, Swiss, Italy, etc. – the magnitude of a collapse like this might be unprecedented.
4) If another big US bank goes under.
5) If one (or more) of the US banks get nationalized – currently, the comments out of the congress and the senate are mixed, but some are talking that this is a possibility. I think they will have no choice but to national key US banks (Citi, Bank of America, etc.) if the economy continues to deteriorate at a rapid pace or once they realize other options are not working. At that stage, all options will be on the table, and nationalizing the banks will be the first move, in order for the government to take control of the lending situation.
6) if a (“too big to fail”) company like GE actually does fail, or at least takes a major hit - It’s stock price is now trading below $10 for the first time (at least in a long time) and the rumours are that it is going to lose its Triple-A ratings from Moody’s and/or S&P. There is also speculation that it might cut its dividend.
7) England appears to be in trouble – they will likely feel major pain, but are unlikely to default on anything major (but who knows, right?).
8) Russia has currency issues, but I think they still have some capital reserves (although falling fast). Citizens are afraid of a situation similar to the 90s - back in 1998, the country let the ruble plunge, defaulted on debt and millions of people’s savings were wiped out.
9) Germany might become a country to watch down the road, as it is one of Europe’s strongest economies. Some people believe that Germany could be in worst shape than we can see.
10) If major (unsolvable) fractures in the European Union materializes, and perhaps even leading to separation of Union members or a complete end to the Union. These scenarios are unlikely, but there will be some serious challenges facing the Union in the near future, nevertheless. Their structure does not appear to be ideal to handle this current (unprecedented) crisis, IMO. Anything is possible.
'global economy may take as long as 10 years to return to the peak level reached in 2006,'
"He also said gold is likely to outperform U.S. stocks over the next five to 10 years, and that he is increasing investments in the metal."
The article: Faber Sees Global Economy Taking 10 Years to Recover, SCMP Says
By Tom Kohn
Feb. 15 (Bloomberg) -- Marc Faber, the investor known as Dr. Doom, said the global economy may take as long as 10 years to return to the peak level reached in 2006, the South China Morning Post said, citing an interview.
“The crisis won’t be over anytime soon,” Faber said, according to the report. Still, interest-rate cuts may cause a short-term jump for stocks, including a leap of as much as 30 percent in Hong Kong within three months, he added. In the second half, equities will likely fall again amid the slowdown, he added.
Commodities have “a very strong rebound potential” over the next few years, Faber said, citing silver, platinum and palladium as investments to consider. He also said gold is likely to outperform U.S. stocks over the next five to 10 years, and that he is increasing investments in the metal.
Technology companies, such as Intel Corp., Cisco Systems Inc., Oracle Corp. and Microsoft Corp., also look “quite interesting,” Faber added. Still, investors shouldn’t have more than 15 percent of assets in equities at the moment, said Faber, who also publishes the “Gloom, Boom & Doom Report.”
Last Updated: February 14, 2009 21:45 EST
Post a Comment