Tuesday, June 13, 2006


'Signs Of Inflation Coupled With Slowing Growth'

The Financial Times on the equity markets. "The sell-off in global equity markets gathered pace on Tuesday, as European bourses suffered sharp losses following overnight falls on Wall Street and declines across Asia amid fears about the effect of tighter monetary policy on global growth. In London, the FTSE 100 sank below 5,500, fallling 126.7 points or 2.2 per cent to 5,494.2. The FTSE is now 10.7 per cent below its 2006 high, reached in April, and down 4.4 per cent for the year to date."

"Mervyn King, the governor of the Bank of England warned on Monday that there are signs signs of inflationary pressures in the main industrialsed economies, echoing comments from US policymakers. King, in a speech yesterday in Edinburgh, said global rates may have been too low for too long, fanning the inflation now feeding into the U.K. economy."

"In Tokyo, the Nikkei 225 Average endured its largest one day fall for two years, plunging 4.1 per cent to 14,218.60, its lowest level since November. The Nikkei's weakness contributed to severe pressure across Asian markets amid persistent concerns about the prospects for the US economy, a vital export market for the region. The Korean market fell 2.9 per cent to 1,203.86, a seven-month low."

From Bloomberg. "'There is fear that more rate increases are to come than previously expected,' said Matthias Fankhauser, a fund manager in Zurich, which oversees the equivalent of $18 billion. 'We are seeing signs of growing inflation coupled with slowing growth. That is what the market is bracing itself for.'"

"Concern about the effects of accelerating inflation and rising interest rates on the global economy has wiped out some $1.85 trillion in market value worldwide this month. Increases in borrowing costs leave consumers with less to spend on goods such as cars, televisions and mobile phones, and reduce demand for mortgages and loans."

"Anglo American Plc and Rio Tinto Group, the world's second- and third-largest mining companies, led the decline in Europe as metals prices fell. Honda Motor Co. and Samsung Electronics Co. paced a drop by exporters in Asia. Emerging markets tumbled, especially in Russia and Eastern Europe."

"Commodity producers were the worst performers among the Stoxx 600's 18 industry groups. Anglo American fell 5.2 percent to 1842 pence. Rio Tinto slipped 3 percent to 2556 pence. Gold prices fell below $600 an ounce for the first time in almost two months. Gold for immediate delivery declined as much as $15.65 an ounce, or 2.6 percent, to $588.60 an ounce."

"The global economy faces increasing 'downside risks,' including rising oil prices, falling stock markets and trade imbalances, said Rodrigo de Rato, managing director of the International Monetary Fund."

"'There are other risks, what we could call global imbalances,' de Rato said. 'The most obvious sign of that is certainly the large current account deficit in the U.S.' The U.S. current account deficit widened to a record $224.9 billion in the fourth quarter. Americans' appetite for goods made in China and other Asian countries is stoking the deficit."

"'The IMF has been advising China to move to a more flexible exchange rate,' de Rato said. 'A flexible exchange rate would make the Chinese economy more resilient.'"

"Surprise interest rate increases in South Korea and India last week were reminders of an inconvenient truth: The era of easy money in Asia is over. In recent years, the policies of regional central banks have provided generous doses of liquidity, keeping borrowing costs low and putting a floor below stock prices. Until now, loose monetary policy worked marvelously."

"The strategy may have run its course now that inflation is accelerating. On top of pressures on wages and property values, Asia is grappling with the fallout from high oil prices. More and more, their effects are seeping into consumer prices."

"What-if scenarios abound. Amid such uncertainty, Asia's central banks must act prudently to extend the region's expansion. Even if it means slightly slower growth, the outlook will be brighter if Asia avoids the booms and busts of the past."

"It's a seemingly impossible balancing act. After all, central bank officials in India, Indonesia and the Philippines may face a public backlash if their actions reduce GDP. What they have in common is crushing poverty, which adds an element of caution that the Fed and ECB don't need to consider."

"It may be a necessary evil given how quickly inflation slams living standards at the lowest end of the economic food chain. Asia's central banks may have a busy year on their hands."

'The IMF has been advising China to move to a more flexible exchange rate,' de Rato said. 'A flexible exchange rate would make the Chinese economy more resilient.'

Another call for a lower US$.
Lowering the Yuan/$$ ratio is exactly the wrong solution to China's problem. I don't think they will budge on this.

The right approach is to increase wages and enforce envirentmental laws in China, which will increase prices of their products.

Gold is going lower on rates threats today.
Silver is off the cliff right now, down about 10% with around 1.5 hours left, it'll be interesting to see where the bottom is on this one.
Your right, off a cliff indeed. The spot market in gold sailed through $570 just now and silver bounced at $9.95. If either heads significantly lower from here, it could spark more technical selling.
Just checked APMEX site and they are frozen...I'm assuming to keep things static until this shakes out to a more stable bottom
Amazing how a few choice words from BB and orchestrated liquidity tightening by the CB's can wipe out a few trillion in equities in a matter of days. That's one way to separate investors from their money. Add to that, higher margin requirements and a little program trading, and you can pop the commodities bubble. This still doesn't change the fundamentals for gold and silver, especially since any additional tightening will crash real estate, and possibly a few banks in the process. The question is where's the bottom?
We are testing support levels for gold now. If you break $550 look out below.
The big CB's have been planning and working on this 'draining of the swamp' for over a year now. One only needs to read their communiques.
WOW! wmbz is psychic!

This still doesn't change the fundamentals for gold and silver, especially since any additional tightening will crash real estate, and possibly a few banks in the process.

We are testing support levels for gold now. If you break $550 look out below.

My belief in the combination of those two statements could not make me happier with what is going on right now.
Regarding my last comment, obviously I would be happier if the Fed/Economic policies of the last 5 years had not led us down the path we are committed to, I'd be happier, but given the set of circumstances, a chance to get some more PM on the cheap is a good thing in my book.
Damn straight! Nothing like a fire sale on earthquake insurance right before the big one hits.

Funny, after my last post I found this on:
The sheep are very nervous.
I have to admit, I would buy more gold under $500. Call me crazy.
..which could be in about an hour or so.
It's obvious that there is some monster manipulation going, at least that's what it looks like to me. None of the fundamentals have changed as far as the dollar is concerned, and the FED is still painting itself into a corner(inflate or die). If gold were to drop below $500 and silver back to $5-6 I would see it as a gift from above, and load up. I don't think that will happen, but there is some big pressure being put on the PM's and in the long run it will have been all for naught.
From an e-mail sent to me...

The plummeting silver price has "nothing to do with a bubble or related driver," according to Paul Mladjenovic, a silver analyst at PM Financial Services in Hoboken, N.J. "There are some very large traders [who are] massively shorting silver, causing an artificial plunge in the silver price," he said, adding that "the situation is great need of scrutiny and enforcement by the CFTC [Commodity Futures Trading Commission]."

Will you "load up" at any level above those you stated? I'm still in dollar-cost averaging mode, attempting as much as possible to "buy on the dips", and this is one big dip!

John in VA,

You have license to gloat, if you will. Although I'm still above water overall, this correction's a doozy and more than I would've expected. Guess you can never underestimate mob mentality (in all it's glorious stupidity) and the firepower of CBs.

Again, though, I'm in it for the long run, and this is truly a gift.
(You have license to gloat, if you will.)

why? all bull markets have corrections. in the early 70s gold dropped from $200 to $100, on it's way to $850.
TJ, As you well know, your long term position is correct.This game takes a long time. I'm hoping to buy back into silver in the 5-7 dollar range. May not happen, but that's my target. As to gold I just don't think we'll see it much lower than high 4's low 5's. Again I'm may be wrong, but I really do believe in market manipulation, when it can be done. On the world stage, the markets are going to fight tooth and nail to keep fiat's a float. Nasty business this money thing.
welp, my big Au/Ag buy on Friday looked like a chance to load up before prices went up. someone just shoot me now.

yeah I know in the long run... but when I got back from my customer call tonight and checked prices it felt like someone punched me in the head.
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