'...Bankrupt en masse
In effect, this means the Western banks, etc are bankrupt en masse. The only thing propping up the entire Western financial system, and its respective stock markets has been massive ‘temporary’ lending, on an ongoing basis, by the Fed and ECB. Both central banks are beginning to balk at this situation. Even as they are starting to have second thoughts, the Western financial institutions continue to borrow more money than ever on a weekly basis. Why aren’t things loosening up?
Can’t stop or else
And, if the ECB or the Fed stops the emergency infusions, or even admit who the borrowers are, another round of collapsing banks/bank runs ensues as investors flee and pull their money out. In other words, the central banks have no choice but to continue the weekly $30-50 billion or so of infusions each for the Fed and the ECB, or else face a cascade of bank runs around the world.
…And each week the Fed and the ECB are effectively taking on another $30 or $50 billion of the bad assets from the various and sundry financial institutions scattered across the EU and the US. So, week after grueling week, the Fed and the ECB keep adding another $50 to $100 billion of bad assets to their balance sheets, as ‘collateral’ and making ‘temporary’ loans they keep having to roll over and extend the repayment on. Ie, the junk stuff is becoming a permanent resident on the central bank’s balance sheets. If either the Fed or the ECB stop the weekly infusions, quite possibly the entire Western financial system stops dead. And we get a massive world stock crash.
The question now becomes, what happens when these two central banks finally decide they have to let go? You are not going to tell me they are going to keep infusing a combined $50 to $100 billion worth of financial bailouts each week forever? This massive temporary lending certainly has to end at some point...'
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More: Kitco.com
By Chris Laird
Wednesday, August 27, 2008
Credit Crisis II, a World Financial Armageddon?
Wednesday, March 19, 2008
What Goes Up,...
"...Now, for the psychology of the event that will now be recorded as the most significant loss in gold since May of 2006, and, in fact, according to Bloomberg - the $59 decline the metal experienced today will be chalked up as its worst ever. Make no mistake, the Dow was not any better off today either, as a 300-point drop almost wiped out the post bailout/Fed euphoria from the other day. Stock traders have a new scapegoat this time: commodity-related issues. They dragged the index down brutally and have given rise to fears of further margin calls. Nothing much was spared today. Perhaps cash..."
"Bank Credit Analyst was quoted as being of the opinion that:, "gold now appears overbought and our commodity & energy strategy service warns that the rally is in a late stage. Thus, we are not making a bold new target at this point. Instead, we will look to take profits on our long/overweight positions in the coming weeks".
Also looking ahead, analysts at Royal Bank of Canada Capital Markets point to "the risk that without any follow-on physical demand for gold, particularly out of India, the Far East and the Middle East (which in aggregate account for ~70% of annual physical demand for gold), significant physical selling could occur, as was observed in mid-2006".
There, investors will no doubt recall, gold bullion spiked to $735 an ounce and then sold-off to $550 an ounce. The analysts believe that a similar correction could see the gold price retrace back to the mid-$800 an ounce level during the seasonall weaker demand northern hemisphere summer months."
"...Repair work would have to begin almost immediately here and thus far there does not appear to be much in the way of bullish news out there save for a small ($3 billion) hiccup over at Merrill. If there is some good news in all of this, it may be that Indian demand may finally break out of its freeze and start mopping up some metal finally. We cannot count on it, but it would surely be welcome."
Friday, March 14, 2008
Quo Vadis, Part II
"Overnight conditions in the gold market remained buoyant, with the metal being able to maintain above $990 per ounce although a few signs of potential slippage were seen in the small declines in oil and mild rise in the dollar. Equities fell in Japan, the Nikkei losing nearly 200 points as worries of a strong yen impacting the country's exporters manifested themselves once again. Speculation about possible government intervention in the currency markets is becoming the topic du jour in trading rooms across Japan and Europe. The dollar was indicated at 72.12 on the index and oil just under $110 per barrel..."
"...The credit problem continues to be prime driver of the flight to safety and of the speculative mania exhibited by funds. The latter has pushed various commodity markets into states of distress. It has been at the center of the latest vertical line on the gold charts. We asked the question yesterday as to where we are going next. We received e-mails exclaiming: $2,000! Let's see what some long-time market observers have to say. Our good friend, Paul Walker from the GFMS research firm in London, was recently quoted as saying:
"Tell me when all the bad U.S. news is going to be out of the market and I'll tell you when the turning point for gold is coming," said Paul Walker, chief executive of London-based GFMS. "It's very difficult to know..."
$1000 Falls. Quo Vadis?
"The countdown to $1,000 gold finally ran out at 10:35 am New York time today as spot bullion reached a historic high of $1,000.25 bid amid the global market conditions that had emerged overnight. The final push to the peak came on the heels of a slump in US retail sales and following a lack of reassuring words or offer of aggressive remedies for the credit black hole by the Mr. Paulson this morning. This was an achievement of a lofty objective, as well as a long-standing one. Very long.
Gold prices appeared to be all primed to finally achieve the $1K mark as early as last night, when background market conditions shifted from bad to worse overnight. Today's spike will likely become known as the "Carlyle/Drake Rally" (or cave-in, depending on your preference). The imminent doom of the Washington-based bond fund and probable demise of the hedge fund sent icy shivers through the financial markets that way overshadowed the (nanosecond-brief) cheer we witnessed following the Fed's term facility plan the other day..."