Friday, June 16, 2006


China Taps The Brakes

The big news today was a move by China. "The Canadian dollar fell sharply against the U.S. currency on Friday on rising concerns about future demand for commodities, after China's central bank decided to increase its reserve requirement. Much of the currency's fall came after China decided to curb the rapid credit growth that Beijing fears could cause the red-hot economy to overheat."

"China raised the proportion of money banks must keep in their reserves by half a percentage point, effective July 5. 'That's one of the reasons for the Canadian dollar weakness,' said Carolyn Kwan, markets economist at Scotia Capital. 'It is one of the weakest, if not the weakest of all the major currencies today.'"

"China's move is 'signaling their concerns that the economy is operating really too strongly,' Kwan said. There has been a lot of loans made by Chinese banks and I think that it has grown at such a pace that the authorities feel that there is a need to really contain that somewhat."

"Raising the reserve requirements will take money out of China's economy and could have an impact on its huge appetite for commodities, she said."

"The Canadian dollar was also hit by the U.S. dollar's momentum after data pointed to an unexpected rise in U.S. consumer sentiment this month. The University of Michigan survey showed consumer sentiment rose in early June, beating expectations for an unchanged reading."

"The US dollar traded mixed against other major currencies Friday after new data showed the trade deficit narrowing in the first three months of this year. The euro bought $1.2635 in afternoon New York trading, up from $1.2609 in New York late Thursday. The British pound also rose to $1.8503 from $1.8472."

"The dollar edged up against the Japanese currency, rising to 115.09 yen from 115.00 in New York. In other trading, the dollar bought 1.2313 Swiss francs, down from 1.2326 late Thursday."

"The Commerce Department reported Friday that America's current account trade deficit fell to $208.7 billion in the January-March quarter, down 6.5 percent from a record $223.1 billion deficit set in the final three months of last year. Although the improvement exceeded expectations, the quarterly deficit still remains at the second highest level on record."

"Analysts also predict rising oil prices to send the deficit in the current quarter to a new high, and they forecast that the imbalance for all of 2006 is on track to set a record for a fifth straight year."

"Gold surged 3.3 percent on Friday on dollar weakness and firm oil prices, but pared gains in the afternoon trade as some investors sold their positions ahead of the weekend. Gold remained under threat and may slip, as people were not yet convinced the recent downtrend is over, analysts said."

"'The majority of trading has been done this week. I think we will have a quiet close to the week,' said a precious metals trader in London."

"Gold rose as high as $585.00 an ounce before easing to $574.30/575.00 by 1352 GMT, against $566.50/$567.50 in late New York on Thursday, when it jumped as much as three percent."

"Traders said there was no impact of China news on precious metal prices. 'Overall, I see precious metals to remain vulnerable in the short-term. however, I don't expect it to test new lows since physical demand and bargain-hunting should provide some support,' said another European dealer."

"In other precious metals, silver advanced as high as $10.35 an ounce before falling to $10.05/$10.15, compared with $10.00/10.10 late in New York. Platinum fell to $1,157/1,163 an ounce from $1,160/1,170, while palladium rose to $301/309, compared with $295/$300 in the U.S. market."

"Traders said there was no impact of China news on precious metal prices."

Gotta call B.S on that..

Wonder which "trader" the author contacted for his article?

The dude you sit next to every day at the pub you frequent doesn't count..

P.S. - I hope some of ya'll got in on the firesale this week, it was a gift from Jp Morgan & Goldman Sachs.
The Financial Times:

'The US on Thursday signalled it would not fight efforts to create an Asian currency unit, turning the page on over a decade of largely consistent opposition to Asian monetary integration.'

'The green light from the US is a big boost for Japan, which has been pushing the idea of an Asian currency unit loosely modelled on the European currency unit, the precursor to the euro, in face of considerable regional scepticism. It comes at a time of growing diplomatic closeness between Washington and Tokyo.'

'While formidable obstacles remain to the creation of an Asian currency unit, with Asian countries unable to agree on weightings or on the inclusion of Taiwan, the US decision and the broader evolution of US Asia policy it represents may in time be seen as highly significant.'

'The signal was given by Tim Adams, the under-secretary for international affairs at the US Treasury, in a closed session of the World Economic Forum in Tokyo.'

'While Mr Adams spoke in general terms, a copy of his prepared remarks, which has been obtained by the Financial Times, spells out clearly the US position on the Asian currency unit. They say 'we do not see the ACU as a competitor to the dollar.'
Anyone watch BB's speech? Amazes me how he can touch on virtually every "challenge" facing the economy and all Wall Street hears is "Goldilocks".

Also, T. Boone Pickens was on K&C today. He stated that Saudi's pumping full out (currently at 9.05mbd) and their MOM production is trending down.

This post appeared at Iacono's TMTGM blog:

BenJones said...

Gold? Next stop $500, then watch it fall like a set of car keys out the window from the 87th floor.

Clearly gold has become disconnected from fundamentals and is in the process of reverting to the mean, as all asset classes must. What goes up must come down. Don't catch a falling knife or fall for a dead cat bounce.

Gold should hit resistance and come in for a nice soft landing at about $400.

June 16, 2006 12:56 PM

The name even connects to HBB.

There are a lot of Ben Jones' in the world. That's not me. I always appreciate a link!
Of course it isn't you -- although I admit wanting to gauge your reaction. :-)

Just thought you ought to know that someone's attempting to trade on your fame.
Gold? Next stop $500, then watch it fall like a set of car keys out the window from the 87th floor.

Hey TJ, This "BenJones" must be thinking the dollar is going to grow legs of steel. I don't think so, but would love another shot at $500 gold or less. Looks like this may be a very interesting summer. I doubt I'll hit my silver target of $5-7 but $8 may not be out of the question. The CB's are hard at work and are bound to throw a curve ball at some point.
WMBZ, Hope you're wrong on the silver call. ....or rather I say let it come later as I have already backed up the truck previously.

OT ,but regarding Bens' comment above. That is the new model ala the world economy. That's why we have not stopped the illegal imm. among alot of reasons ,but read about the "AMERO" think..EURO.
NA currency ,and open borders North ,and South.
I am leaving or else I'd find the link...Congress has already effectively put it in motion.

That's why we have not stopped the illegal imm. among alot of reasons ,but read about the "AMERO" think..EURO.

I follow a lot of the different sites that are bullish on PM's and I have to be honest, a few of the things I read strike me as a little "tinfoil-hatish". The AMERO talk is one of them. I just cannot see the average American capitulating to having our currency replaced with some quasi-continental junk like the "AMERO". The illegal immigration comparison is interesting because in almost all polls on the topic, the average American is overwhelmingly opposed to illegal immigration or amnesty. Even so, the ruling elite can get away with some amount of chicanery because its not always in your face.

Changing currencies on the other hand, would be smack in front of everyone in the country, and I just don't think that it would be accepted. I know it went over in Europe, but I think the psychology is different here. Americans are proud of their identity, and the dollar is one of the most visible facets of that.

Anyways, I think about two-thirds of the ideas I read on those sites are pretty spot on. I don't think we're going to have a complete economic collapse or replace the USD with the AMERO, but I do think the only way out of this mess after all the attempts at tricks and manipulations is going to be inflating our way out of it.
WMBZ, Hope you're wrong on the silver call. ....or rather I say let it come later as I have already backed up the truck previously.

Not to worry, I've lost track of the number of times I've been wrong!Short term shifts are hard to figure out(at least for me).Just when I think I have a handel on it... Bam! I'm taught another leason. Long term we are on the right track, metals wise IMHO.
Speaking of China, did anyone see this in Marketwatch: Watching China for the Next Wave of Dot-Bomb Stocks.

Aggressive lending by Chinese banks and heavy government spending in advance of the 2008 Summer Olympics in Beijing have also exacerbated the liquidity bubble. Adding to the risk are other factors unique to China, including arbitrary government intervention in various markets and a growing pile of non-performing loans, which stand at $673 billion, according to a recent Fitch Ratings report that called Chinese lending practices into question.

The article speculates that China may be able to keep it's bubblicious economy afloat until after the Olympic Games. I doubt it. There are a lot of naked swimmers in China right now, and if the U.S. consumer slows down, the tide is going to go out very quickly
I'd be interested in hearing opinions on the Shanghai Cooperation Organization (alliance between China, Russia, and some former Soviet republics, along with India, Iran, Pakistan, and Mongolia as ancillary members). It seems like it could lead to some scary things down the road.

Also, it still surprises me to hear Jim Puplava say that he thinks we'll be able to inflate our way out of the housing crash. Seems unlikely to me, but I'd be interested in hearing other opinions. Even with extraordinarily long mortgages and low rates, it doesn't seem like lending standards themselves could be made any more relaxed than they are (or will be in response to all of the foreclosures many expect).
Puplava's an unapologetic inflationist, and he makes lots of solid points. But, being an analyst by nature & trade (IT), I have to argue everything with everybody... and I don't see inflation "saving" us either.
OT but more tough talk from Hugo Chavez to nationalize gold/diamond mines that haven't begun producing yet...
Read this today...Kind of interesting. Is this significant or just more duff to read through? Maybe some of you longtimers can validate some of it?

Posted On: Sunday, June 18, 2006
Remarkable Development in the Gold Market
Author: Dan Norcini
Good stuff. WMBZ, this is pretty much in line with your sources, right?
WMBZ, this is pretty much in line with your sources, right?
# posted by TJ & The Bear : 10:14 PM

Yes sir! When we start seeing things that have not been seen before, the
"what-if's" really start to pop into your mind. As to silver, "what-if" some large delivery orders came rolling into the COMEX? There is no way they could cover them. I for one am not so sure they can be trusted as to their inventory numbers. There are some huge games being played and one day the paper players are in for a nasty surprise. The silver I have is all physical.Things just keep getting interesting-er.
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