As The Euro Goes The Way Of The Dodo, Where Does That Leave The Dollar?
by ilene - November 30th, 2010 5:12 pm
Gonzalo Lira believes the Eurozone is heading for a crash, and that "anyone saying otherwise is either stoned, works in Brussels, or hasn’t checked the European bond market action lately." As a consequence, the "smart money" starts thinking about what’s going to happen after the euro-crisis-climax — what’s going to happen to the dollar? Here’s Gonzalo Lira’s analysis. – Ilene
As The Euro Goes The Way Of The Dodo, Where Does That Leave The Dollar?
Courtesy of Gonzalo Lira
The Eurozone is heading for a crash—anyone saying otherwise is either stoned, works in Brussels, or hasn’t checked the European bond market action lately: All hell is breaking loose there.
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| The Euro: A famed, flightless bird, now extinct. |
And if, as I have argued here, the Irish Parliament decides not to pass the austerity budget next December 7—that is, decides not to take the European Central Bank bailout—then hell is going to break out in Europe just in time for Christmas: Satan and Santa Claus just might be squaring off on the Rue Belliard before year’s end.
Therefore, the smart money starts thinking about what’s going to happenafter the euro-crisis-climax happens.
In other words, what’s going to happen to the dollar, once the euro goes the way of the dodo.
First, we have to understand how we got here, in order to figure out what’s going to happen next.
The Banana Republics of Europe
In the 1970’s and ‘80’s, various Latin American republics foolishly pegged their currency to the U.S. dollar.
It worked like a charm—at first. At first, all these small-fry countries took advantage of the fixed currency exchange rate to get indebted in dollars, and go off on a big-time shopping spree.
It all ended in tears, of course, when the bill came due. Chile, Argentina, Perú, Uruguay, at various times they…
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DiggDebt Bubble Chronicles: And Heeeeere’s the European “Lehman Event”
by Zero Hedge - November 30th, 2010 4:29 pm
Courtesy of Phoenix Capital Research
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Earlier this year, I noted that the European debt crisis was mimicking the US’s 2008 banking crisis almost to a T. Greece was the “Bear Stearns” issue: a minor player that was swallowed up in the drive to maintain the appearance of stability.
Then came the $1 trillion bailout, the equivalent of the Fannie/ Freddie “blank check”: a massive sum of money thrown at a problem meant to convey the illusion that the powers that be have everything under control and that systemic risk is non-existent.
During the time of my first article, I stated that all we needed now was a “Lehman event” the event which proves beyond all doubt that contagion is occurring and that the entire system is at risk.
Well, it looks like we’re about to get it.
The ink on the Ireland bailout is not even dry and already Portugal, Italy, and Spain are crumbling. The market is no longer buying the “it’s only this particular country’s problem” jibe. The notion of systemic risk is finally beginning to dawn on investors. And as 2008 proved, once panic hits, it hits in a BIG way.
Indeed, as ZeroHedge recently noted, the yield on the latest Ireland bailout involved interest rates for the country at 6.7%, a full 1.5% higher that the interest demanded of Greek debt. In other words, the IMF and EU view Ireland’s bailout as more risky than that of Greece.
Does Ireland look worse than Greece to you?
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US Mint Sells Record 4.2 Million American Eagle Silver Coins In November
by Zero Hedge - November 30th, 2010 4:24 pm
Courtesy of Tyler Durden
In what is becoming a very sad development, the more money (pardon, monetary base) Bernanke prints, the more silver coins Americans buy. According to the US Mint, November sales of silver just hit 4.16 million ounces or coins, an all time record, since the introduction of the coin in 1986, and that does not even include the last day of the month. The number is roughly a 30% increase to the 3.15 million one-ounce Eagles sold in October, and well above the previous 2010 record of 3.6 million sold in May. So far in 2010, the mint has sold 32.8 million ounces of silver, higher than the previous full year record of 29 million coins set in 2009.
More from Reuters:
“The underlying, basic reasons for the silver market’s rise are really gold-oriented, but the speculative element of silver continues to be a big driver,” said Bill O’Neill, partner of New Jersey-based commodities firm LOGIC Advisors.
O’Neill said that a well established retail coin-dealer network helped increase sales of the silver Eagles. He called silver a “speculative playground” and does not recommend trading it due to high volatility.
Silver, gold and platinum group metals have benefited from the fiscal crises in Greece, Ireland that could also spread to other European nations, lingering worries about economic growth and inflation concerns.
Oddly, the scramble for precious metals was not mimicked in a surge for gold, which sold “only” 103k ounces, including 99.5 one ounce coins. And to point out an error in the Reuters’ article math, the June sales were not 452,000 ounces but coins, while the actual ounce equivalent sold was 151,500 ounces. So far the most active month in US mint gold coin purchases was May when 190k one ounce gold coins were sold.
We can merely speculate that the Krieger/Kaiser plan of bankrupting JPMorgan through a popular scramble for physical is if not working, then certainly getting ever more supporters.
JP Morgan Options Player Portends Near-Term Rebound in Shares
by Option Review - November 30th, 2010 4:18 pm
Today’s tickers: JPM, UPS, GM, SNDK, FO & SVU
JPM - JPMorgan Chase & Co. – One options strategist expecting a near-term turnaround in JPMorgan’s shares purchased a call spread in the December contract today. Shares of the financial services firm are currently down 0.75% to stand at $37.62 in the final hour of the trading session. It looks like the investor picked up 7,000 calls at the December $38 strike at a premium of $0.80 each, and sold the same number of calls at the higher December $40 strike for a premium of $0.22 apiece. Net premium paid to initiate the bullish spread amounts to $0.58 per contract, thus positioning the trader to make money should shares in JPMorgan climb 2.55% to surpass the effective breakeven price of $38.58 by December expiration day. The call-spreader stands prepared to accumulate maximum potential profits of $1.42 per contract if shares rally 6.3% over the current price of $37.62 to trade above $40.00 by expiration day in the final month of the year.
UPS - United Parcel Service, Inc. – Bullish options traders are scooping up in- and out-of-the-money call options on UPS this afternoon. Shares of the package delivery services provider increased as much as 0.80% today to hit an intraday- and new 52-week high of $70.44. The stock is currently up 0.40% to arrive at $70.15 as of 1:50 pm. More than 25,700 option contracts have changed hands on UPS thus far today, with more than 4.25 calls exchanged on the stock for each single put contract that has traded. Near-term bulls purchased more than 1,400 now in-the-money calls at the December $70 strike for an average premium of $1.16 each. Optimists looked up to the higher December $72.5 strike where more than 13,000 calls changed hands versus previously existing open…
QE2: Beware the Perils of its Success
by Zero Hedge - November 30th, 2010 4:16 pm
Courtesy of Vitaliy Katsenelson
Over the next eight months the Federal Reserve will conduct QE2 – quantitative easing, the sequel. It will buy $600 billion worth of US long-term bonds in the open market, close to 7% of all Treasury securities in public hands, or about the amount the debt that the federal government will issue over that time period.
The Fed has already taken short-term rates down to zero, pushing income-seeking investors and savers to higher-yielding (lower-rated) and higher-duration (riskier) bonds. Now, with the magic of QE2, the Fed wants to drive long-term rates down to unseen levels and push all Treasury investors (short or long) towards higher-risk assets – junk bonds, real estate, stocks, and commodities.
The Fed also hopes (that is all it can do at this point) that low interest rates will nudge businesses to invest and to hire. That’s unlikely. The value of any asset is the present value of its future cash flow. As my favorite philosopher Yogi Berra (allegedly) said – “In theory there is no difference between theory and practice. In practice there is.”
In theory lower interest rates decrease the rate that businesses use to discount future cash flows – making future cash flows more valuable today – and the Fed is betting on that. In practice, however, the fickle source of lowered interest rates is not lost on businesses. Rising debt on government and…
Portuguese PM Response To Downgrade: “We Dot Not Need Any Help”
by Zero Hedge - November 30th, 2010 4:09 pm
Courtesy of Tyler Durden
Of course, he will need not only help, but a bailout, in one week when his bonds are trading a 10%+. In the meantime, let the comedy continue.
RANsquawk Market Wrap Up – Stocks, Bonds, FX etc. – 30/11/10
by Zero Hedge - November 30th, 2010 4:08 pm
Courtesy of RANSquawk Video
S&P Places Portugal On Watch Negative, May Cut A- Rating
by Zero Hedge - November 30th, 2010 3:48 pm
Courtesy of Tyler Durden
This is getting ridonculous: “On Nov. 30, 2010, Standard & Poor’s Ratings Services placed its ‘A-’ long-term and ‘A-2′ short-term foreign and local currency sovereign credit ratings on the Republic of Portugal on CreditWatch with negative implications. The transfer and convertibility assessment remains ‘AAA’.” The only that matters: what does Dagong say. Our clown rating agencies are way overdue for retirement watch imminent. If the market is totally retarded, we guess the EURUSD may be whacked on this news.
Portugal ‘A-/A-2′ Ratings Placed On Watch Negative On Uncertainty Regarding The Effects Of The Proposed EU Treaty Change
Overview
* Standard & Poor’s is assessing the proposed EU treaty changes regarding the seniority of private-sector creditors.
* We are placing our ‘A-’ long-term and ‘A-2′ short-term ratings on Portugal on CreditWatch with negative implications.
Rating Action
On Nov. 30, 2010, Standard & Poor’s Ratings Services placed its ‘A-’ long-term and ‘A-2′ short-term foreign and local currency sovereign credit ratings on the Republic of Portugal on CreditWatch with negative implications. The transfer and convertibility assessment remains ‘AAA’.
Rationale
The CreditWatch placement reflects our view of increased risks to the government’s creditworthiness. These risks stem from uncertainty about the government’s possible recourse to official funding and the consequences that obtaining such funding could have for the position of private-sector creditors vis-à-vis official creditors after 2013.
In 2011, Portugal’s minority government is set to implement an ambitious fiscal austerity program with an emphasis on reducing expenditures. However, we see the government as having made little progress on any growth-enhancing reforms to offset the fiscal drag from these scheduled 2011 budgetary cuts. In particular, we believe that policies the government has pursued have done little to boost labor flexibility and productivity. As a consequence of the Portuguese economy’s structural rigidities and the volatile external conditions, we project that the economy will contract by at least 2% in 2011 in real terms. The downward revision to our growth projection also reflects the fact that Portugal has not reduced its large external current account deficit during 2010.
In addition to what we view as the economy’s weak growth prospects, the large stock of Portuguese debt that non-residents hold (54% of GDP) has increased the government’s vulnerability to rising real interest rates. This contributes to the country’s large gross external financing needs and, we believe, raises the likelihood…
China Approves Fund That Will Invest In Foreign Gold ETFs, Opening Avenue For Millions Of Mainland Investors
by Zero Hedge - November 30th, 2010 3:26 pm
Courtesy of Tyler Durden
And here is the catalyst: China has approved a fund that will invest in gold exchange-traded funds outside the country, opening the door to mainland China investors who face negative real interest rates on their bank deposits and want to hedge against inflation. Beijing-based Lion Fund Management Co. said they received approval from the China Securities Regulatory Commission on Monday to proceed with the fund. Next stop: gold much higher as the bubble mania is really unleased in such ETFs as GLD, UGL and PHYS.
More from Dow Jones:
Beijing-based Lion Fund Management Co. said they received approval from the China Securities Regulatory Commission on Monday to proceed with the fund.
“Over the longer term it should be another factor to add to gold’s support,” said Carlos Sanchez, associate director of research with CPM Group in New York.
The move is a step in the development of the financial market in China, the world’s second largest gold consumer behind India, and the No. 1 producer of the metal. It comes on the heels of an August move to increase the number of commercial banks allowed to import and export gold, broadening the domestic market beyond the five largest commercial banks.
Chinese gold imports have been climbing as the nation’s central bank started to build gold reserves in recent years and domestic interest in gold investment grew. China’s gold lobby has long pressured the government to raise its gold holdings.
A first of its kind for mainland China, the fund brings Chinese buying power to an increasingly popular way for participants to invest in gold.
Then again, China may not need to come to the US for this. They may just stay with their own completely fraudulent exchanges, where ETFs will be backed not even by paper gold, but literally by paper:
“I wouldn’t be surprised to see China come up with an ETF themselves for gold,” Sanchez said.
The investor-led gold buying--which has also sent futures to a record $1,424.30 earlier this month and boosted shares of gold miners--comes as participants are betting gold will hold its value more strongly than other holdings like the U.S. dollar or dollar- based investments.
And so talk of a gold bubble may finally resume. Of course, it will first require that…
S&P Relishes In Its Irrelevance, Says “At The Current Time, France Deserves Its AAA Rating”
by Zero Hedge - November 30th, 2010 3:21 pm
Courtesy of Tyler Durden
The escalating series of simply tragicomic news out of Europe continues. Per Reuters, “France deserves its “AAA” credit rating at the current time, the president of Standard & Poor’s credit agency told a French business daily on Tuesday. “At the current time, France deserves its AAA rating,” newspaper Les Echos quoted Deven Sharma as saying in an advance edition due for publication on Wednesday.” As we suggested earlier, France will not be downgraded by Moody’s before 2014. That means S&P will last until France is rebranded the German Vassal Kingdom of Gaul before it notches the country even one rating lower.
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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