Draghi Says ECB Will Buy Assets Over at Least Two Years

02-Oct (Bloomberg) — The European Central Bank will buy assets for at least two years to boost inflation and economic growth in the euro area, President Mario Draghi said.

The Frankfurt-based central bank will start buying covered bonds this month and plans to purchase asset-backed securities starting this quarter, Draghi said today at a press conference in Naples, Italy, after the ECB left interest rates unchanged at record lows. “These purchases will have a sizable impact on the balance sheet,” he said.

The purchase program is part of an easing plan Draghi has said will steer the balance sheet back to levels seen at the start of 2012, signaling as much as 1 trillion euros ($1.3 trillion) in assets could be added. Since June the ECB has cut interest rates twice and announced a range of measures such as loans to banks aimed at boosting credit to the real economy.

[source]

Posted in Central Banks, Monetary Policy |

ECB holds steady on rates. Draghi unveils details of ABS covered bond purchase plan.

Posted in Central Banks, Monetary Policy |

ISIS militants less than 2 miles from Baghdad, fierce fighting reported near Iraqi capital

02-Oct (NY Daily News) — The Islamic State group has made gains in Iraq, approaching the country’s largest city Monday. Meanwhile, ISIS continued to attack Kurdish town Kobani in northern Syria. While the Turks have sent tanks to the border, so far they haven’t lifted a finger to help the Kurds, who face being massacred if ISIS keeps advancing.

The Vicar of Baghdad sent an SOS from the besieged Iraqi capital Monday and warned that the murderous Islamic State militants were breathing down their necks.

“ISIS are now just 5 miles away from Baghdad,” Canon Andrew White, who runs the last Anglican church in Iraq, wrote on his Facebook page. “Lord have mercy, Christ have mercy. We need you.”

White posted the alarm after Iraqi forces — backed by air strikes from the U.S.-led coalition — appeared to have stymied an earlier ISIS advance on the city.

[source]

Posted in Geopolitical Risks |

US initial jobless claims -8k to 287k in the week ended 27-Sep, below expectations of 298k, vs upward revised 295k in previous week.

Posted in Economic Data |

Gold easier at 1212.73 (-2.42). Silver 17.08 (-0.141). Dollar slips. Euro better. Stocks called better. US 10yr 2.41% (+2 bps).

Posted in all posts |

U.S. National Debt: $17,824,071,380,733.82

Posted in Debt |

Gross Exposes $42 Trillion Bond Market’s Key Flaw in Exit

01-Oct (Bloomberg) — One man shook a $42 trillion bond market last week, highlighting just how vulnerable bond prices are to shocks.

Bill Gross’s surprise departure on Friday from Pacific Investment Management Co. sparked selloffs in some of his biggest wagers, such as inflation-protected U.S. government bonds. The most-traded assets quickly recovered after the exit of the star trader, who dominated the $2 trillion asset manager’s investment strategy. But the less-traded ones are still feeling the effects, according to David Leduc, chief investment officer at Standish Mellon Asset Management Co.

“What you’re seeing most of is a lack of liquidity in the bond market,” said Christopher Orndorff, a money manager at Western Asset Management Co. “When you get a dislocation like this, it tends to exacerbate price movements maybe more than what you’d have seen 10 years ago.”

[source]

PG View: The massive bond market is built on a foundation of sand. The relative illiquidity of the market of late is a direct result of the faux liquidity provided by global central banks in recent years.

Posted in Debt |

Russia is starting to use the same line on Baltic countries that it used to invade Ukraine

01-Oct (Vox) — A senior Russian Foreign Ministry official says that Moscow has a responsibility to protect ethnic Russian citizens of other countries, “regardless of where they live,” and that “we will do everything possible to defend the rights and interests” of ethnic Russian minorities in the neighboring Baltic states of Estonia, Latvia, and Lithuania.

The comments came from Anatoly Makarov, the director of the Foreign Ministry’s Department for Interaction with Compatriots Abroad. He was speaking to the Russian outlet RuBaltic, as translated by Paul Goble. “We are carrying out a line so that Russian compatriots regardless of where they live are guaranteed all rights and freedoms … and have the opportunity to preserve the culture and traditions of their historical Motherland,” Makarov said, explicitly extending this to the million-plus ethnic Russians who are citizens of Baltic countries.

Here’s why that’s a bad sign: Russia premised its two invasions of Ukraine (first to annex Crimea in March, then to invade eastern Ukraine in August) on protecting ethnic Russian and Russian-speaking minorities in the country.

[source]

Posted in Geopolitical Risks |

Fighting intensifies in Ukraine as pro-Russian rebels move on Donetsk airport

01-Oct (Washington Post) — Fighting intensified in eastern Ukraine on Wednesday despite a fragile cease-fire, as pro-Russian rebels appeared to be close to capturing the strategically important Donetsk airport.

The fighting was some of the worst since a Sept. 5 cease-fire calmed the conflict, although shelling and casualties have continued throughout the nearly four weeks since the agreement was reached. Ukraine’s military and rebel forces said the fighting worsened Wednesday, as rebels vowed to seize the airport, a key facility that has remained in government hands for almost all of the six-month-long conflict.

If rebels succeed in taking the airport, they would gain an important means to bring in supplies to their war-torn territory as they seek to build a new state in Ukraine’s southeast. The cease-fire hands over effective control of the territory to the rebels without granting them independence. For the government in Kiev, losing the airport would be a major symbolic defeat after its forces sustained heavy losses in a battle in late May to keep it under their control.

[source]

Posted in Geopolitical Risks |

Mario Draghi pushes for ECB to accept Greek and Cypriot ‘junk’ loan bundles

30-Sep (Financial Times) — Mario Draghi is to push the European Central Bank to buy bundles of Greek and Cypriot bank loans with “junk” ratings, in a move that is set to exacerbate tensions between Germany and the bank.

Mr Draghi, ECB president, will this week unveil details of a plan to buy hundreds of billions of euros’ worth of private-sector assets – the central bank’s latest attempt to save the eurozone from economic stagnation.

The ECB’s executive board will propose that existing requirements on the quality of assets accepted by the bank are relaxed to allow the eurozone’s monetary guardian to buy the safer slices of Greek and Cypriot asset backed securities, or ABS, say people familiar with the matter.

[source]

Posted in Central Banks, Monetary Policy, QE |

The Daily Market Report: Gold Firms, Still Holding Above $1200


01-Oct (USAGOLD) — Gold has bounced once again from in front of $1200, bolstered by intensified fighting in Ukraine and more soft European and U.S. economic data. The dollar came off its recent highs, U.S. 10-year yields tumbled back toward 2.40% and global stocks fell.

Fighting between the Ukrainian military and pro-Russian rebels intensified in the eastern city of Donetsk. Rebels now claim to control most of the Donetsk airport. There are reports that Ukrainian shells hit a school near the airport. Why everyone is maintaining the charade that there is a ceasefire in place is beyond me…

Eurozone PMI data missed expectations, reflecting mounting evidence that growth has stalled. German PMI actually fell back below 50, suggesting that manufacturing activity is now contracting in the economic-engine of Europe. This further raises the likelihood that the ECB will ease further, perhaps via direct asset purchases.

The euro dutifully fell further, but the dollar index failed to make new highs as U.S. data disappointed as well. This perhaps may further delay U.S. rate ‘lift-off’ that everyone has been talking about for the past several months.

U.S. manufacturing PMI slowed as well, and manufacturing ISM for September was revised lower. Construction spending came in well below expectations at -0.8%, where a 0.3% increase was expected.

On the bright side, the ADP employment survey beat expectations at +213k. This establishes some upside risk for Friday’s September nonfarm payrolls report. Median expectations are +215k.

Posted in Daily Market Report, Gold News, Gold Views |

Golden Rule: Why Beijing Is Buying


by Alan Greenspan
29-Sep (Foreign Affairs) — If China were to convert a relatively modest part of its $4 trillion foreign exchange reserves into gold, the country’s currency could take on unexpected strength in today’s international financial system. It would be a gamble, of course, for China to use part of its reserves to buy enough gold bullion to displace the United States from its position as the world’s largest holder of monetary gold. (As of spring 2014, U.S. holdings amounted to $328 billion.) But the penalty for being wrong, in terms of lost interest and the cost of storage, would be modest. For the rest of the world, gold prices would certainly rise, but only during the period of accumulation. They would likely fall back once China reached its goal.

The broader issue — a return to the gold standard in any form — is nowhere on anybody’s horizon. It has few supporters in today’s virtually universal embrace of fiat currencies and floating exchange rates. Yet gold has special properties that no other currency, with the possible exception of silver, can claim. For more than two millennia, gold has had virtually unquestioned acceptance as payment. It has never required the credit guarantee of a third party. No questions are raised when gold or direct claims to gold are offered in payment of an obligation; it was the only form of payment, for example, that exporters to Germany would accept as World War II was drawing to a close. Today, the acceptance of fiat money — currency not backed by an asset of intrinsic value — rests on the credit guarantee of sovereign nations endowed with effective taxing power, a guarantee that in crisis conditions has not always matched the universal acceptability of gold.

If the dollar or any other fiat currency were universally acceptable at all times, central banks would see no need to hold any gold. The fact that they do indicates that such currencies are not a universal substitute. Of the 30 advanced countries that report to the International Monetary Fund, only four hold no gold as part of their reserve balances. Indeed, at market prices, the gold held by the central banks of developed economies was worth $762 billion as of December 31, 2013, comprising 10.3 percent of their overall reserve balances. (The IMF held an additional $117 billion.) If, in the words of the British economist John Maynard Keynes, gold were a “barbarous relic,” central banks around the world would not have so much of an asset whose rate of return, including storage costs, is negative.

[source]

Posted in Gold News, Gold Views |

Investors Speak: Three Reasons to Sell Yen

01-Oct (The Wall Street Journal) — The yen has declined sharply against the dollar since mid-August and fell further Wednesday amid growing speculation that the U.S. Federal Reserve will start raising interest rates soon.

But foreign-exchange managers believe there are two other factors that may be less visible but have provided downward pressure for the Japanese currency. One is the negative real interest rate in Japan, and the other involves capital outflows. These two factors, they say, are likely to persist and weigh on the yen for the months to come.

[source]

PG View: It’s all part-and-parcel of the ongoing currency war.

Posted in Central Banks, Currency Wars, Monetary Policy |

Gold ETF Holdings At Lowest Level Since September 2009

01-Oct (Barron’s) — Despite protests in Hong Kong and tensions in Ukraine, geopolitical troubles did little to lift gold in September, as the U.S. dollar strengthened on hopes that the Federal Reserve will tighten its monetary policy as early as this month.

To that point, Interactive Brokers’ Andrew Wilkinson has a new report out in which he notes that total known gold ETF holdings have declined to their lowest point in more than five years.

[source]

PG View: As usual the decline in the price of gold is primarily being driven by paper sales. Historically, such a situation provides an excellent opportunity to buy physical gold.

Posted in Gold News, Gold Views |

US ISM manufacturing fell to 56.6 in Sep, below expectations of 58.1, vs 59.0 in Aug.

Posted in Economic Data |

US construction spending -0.8% in Aug, below expectations of +0.3%, vs negative revised +1.2% in Jul (was +1.8%).

Posted in Economic Data |

German Sep Markit PMI – Manufacturing revised lower to 49.9, below expectations of 50.3, vs 50.3 previously.

Posted in Economic Data |

Eurozone Sep Markit PMI – Manufacturing revised lower to 50.3 in Sep, below expectations of 50.5, vs 50.5 previously.

Posted in Economic Data |

US ADP employment survey +213k in Sep, above expectations of 207k, vs negative revised 202k in Aug.

Posted in Economic Data |

Gold better at 1211.98 (+4.11). Silver 17.07 (+0.114). Dollar higher. Euro lower. Stocks called lower. US 10yr 2.45% (-4 bps).

Posted in all posts |

Why China thinks gold is the buy of the century (. . . In one easy lesson)

dragonshoard3-1

We’ve just released the October issue of USAGOLD’s Review & Outlook.  This Special Report reviews China’s strong interest in gold in light of its massive $4 trillion in foreign exchange reserves.  China is not just a buyer of gold, it is a willing buyer with massive pent-up purchasing power.

To read the details, we invite you to visit this month’s issue.

Posted in all posts |

The End of Monetary Policy

28-Sep (MauldinEconomics) — The Organization for Economic Cooperation and Development has a marvelous website full of all sorts of useful information. Let’s start by looking at inflation around the world. This table is rather dense and is offered only to give you a taste of what’s available.

What we find out is that inflation is strikingly, almost shockingly, low. It certainly seems so to those of us who came of age in the ’60s and ’70s and who now, in the fullness of time, are watching aghast as stupendous amounts of various currencies are fabricated out of thin air. Seriously, if I had suggested to you back in 2007 that central bank balance sheets would expand by $7-8 trillion in the next half-decade but that inflation would be averaging less than 2%, you would have laughed in my face.

…Gross domestic product around the developed world ranges anywhere from subdued to anemic to outright recessionary:

The G-20 itself is growing at an almost respectable 3%, but when you look at the developed world’s portion of that statistic, the picture gets much worse. The European Union grew at 0.1% last year and is barely on target to beat that this year. The euro area is flat to down. The United Kingdom and the United States are at 1.7% and 2.2% respectively. Japan is in recession. France is literally at 0% for the year and is likely to enter recession by the end of the year. Italy remains mired in recession. Powerhouse Germany was in recession during the second quarter.

Let’s put those stats in context. We have seen the most massive monetary stimulation of the last 200 years in the developed world, and growth can be best described as faltering. Without the totally serendipitous shale oil revolution in the United States, growth here would be about 1%, or not much ahead of where Europe is today.

[source]

PG View: Mauldin’s insights about deflation, anemic growth and rising debt levels are supported by The Geneva Report that also came out this week. In combination, the two reports should illicit a level of concern among investors that should prompt defensive portfolio adjustments that very-well should include gold.

Posted in Central Banks, Debt, Deflation, Economy, Monetary Policy |

China Aims For Official Gold Reserves At 8500t

29-Sep (BullionStar) — China should accumulate 8,500 tonnes in official gold reserves, more than the US, according to Song Xin, President of the China Gold Association, General Manager of the China National Gold Group Corporation and Party Secretary. He wrote this in an opinion editorial published on Sina Finance July 30, 2014. Gold is money par excellence in all circumstances and will help support the renminbi to become an international currency as “gold forms the very material basis for modern fiat currencies”, Song notes.

[source]

Posted in Gold News, Gold Views |

Mass default looms as world sinks beneath a sea of debt

29-Sep (Telegraph) — As if the fast degenerating geo-political situation isn’t bad enough, here’s another lorry load of concerns to add to the pile.

The UK and US economies may be on the mend at last, but that’s not the pattern elsewhere. On a global level, growth is being steadily drowned under a rising tide of debt, threatening renewed financial crisis, a continued squeeze to living standards, and eventual mass default.

I exaggerate only a little in depicting this apocalyptic view of the future as the conclusion of the latest “Geneva Report”, an annual assessment informed by a top drawer conference of leading decision makers and economic thinkers of the big challenges facing the global economy.

Aptly titled “Deleveraging? What Deleveraging?”, the report points out that, far from paying down debt since the financial crisis of 2008/9, the world economy as a whole has in fact geared up even further. The raw numbers make explosive reading.

Contrary to widely held assumptions, the world has not yet begun to de-lever. In fact global debt-to-GDP – public and private non financial debt – is still growing, breaking new highs by the month.

[source]

Posted in Debt, Economy |

ZeroHedge: America’s most important housing metro flashing red

30-Sep (HousingWire) — ZeroHedge has long stated that San Francisco is the canary in the American housing coalmine, and after a double round of bad housing news, that canary is looking green around the gills.

[source]

PG View: In this morning’s Case-Shiller housing report, San Francisco was the only city to see a house prices drop in July.

Posted in Economy |

Euro tumbles on ECB easing speculation

30-Sep (Financial Times) — The euro sank to its lowest level against the dollar for more than two years as the latest eurozone inflation data heightened expectations for further easing measures from the European Central Bank.

The single currency dipped below the $1.26 level for the first time since early September 2012 as the figures showed the headline rate of consumer price inflation slipping to a five-year low of 0.3 per cent this month.

Core inflation, which excludes volatile food and energy prices, unexpectedly fell to 0.7 per cent.

“This will clearly be of serious concern to the ECB as it keeps the deflation spectre in sight, especially given current stuttering eurozone economic activity and weak oil prices,” said Howard Archer, chief European economist at IHS Global Insight.

[source]

Posted in Central Banks, Deflation, inflation, Monetary Policy, QE |

The Daily Market Report: Gold Bounces Again From Infront of $1200


30-Sep (USAGOLD) — Gold slipped to another eight-month low at 1204.35, as the euro collapsed to new two-year lows, pushing the dollar index to a four-year high. However, the approach to $1200 sparked renewed buying interest, which pushed the yellow metal up more than $15 intraday.

Eurozone inflation slowed further in September to a mere 0.3% y/y, despite the extraordinary measures already implemented by the ECB. The escalates pressure on the ECB to take that final step and launch its own version of QE. The euro plunged below 1.26 versus the dollar for the first time in more than two-years. Ongoing weakness in the single currency — and the yen as well — has driven the dollar index to a four-year high of 86.21.

That being said, gold is actually holding up pretty well. The following charts put the recent dollar rally in perspective:

The long term trend in the greenback remains clearly negative. The recent rally is more a function of ongoing — and mounting expectations of further — debasement of the euro and yen. One has to wonder how much further our Fed is prepared to let the dollar go before their guidance starts shifting in an effort to take the wind out of the greenback’s sails before the strength adversely impacts the economy.

Perhaps that is already happening, based on the dovish comments of Chicago Fed President Evans yesterday. See yesterday’s DMR.

Additionally, details of the latest Geneva Report came out yesterday:

The 16th annual Geneva Report, commissioned by the International Centre for Monetary and Banking Studies and written by a panel of senior economists including three former senior central bankers, predicts interest rates across the world will have to stay low for a “very, very long” time to enable households, companies and governments to service their debts and avoid another crash. — Financial Times

The report warns that another global economic crisis may be brewing, as a result of the “poisonous combination” of record debt and slowing growth. The Geneva Report suggests rates will have to stay low for a “very, very long” time. Based on the double adverb, I assume that is longer than the Fed’s official “considerable time” and Evans’ “quite some time”. In fact, the age of easy monetary policy is probably nowhere close to being over, which is pretty clearly illustrated by this tweet from Ambrose Evans-Pritchard:

Easy money. Mounting growth risks. Currency wars. They all make pretty compelling arguments for buying gold at these low prices.

Posted in all posts, Daily Market Report, Gold News, Gold Views |

US consumer confidence sank to 86.0 in Sep, below expectations of 92.3, vs positive revised 93.4 in Aug.

Posted in Economic Data |

US Chicago ISM fell to 60.5 in Sep, below expectations of 62.0, vs 64.3 in Aug.

Posted in Economic Data |

US S&P Case-Shiller Home Price Index (20-cities) +0.6% (nsa) to 173.3 in Jul, vs 172.3 in Jun; +6.7% y/y.

Posted in all posts |