Tuesday, February 23, 2010

Gold May Advance to $1,400 in 12 Months: Technical Analysis

Gold may climb to about $1,400 an ounce in the next 12 months, according to technical analysis by Chartered Market Technician Daniel Bruno, who advises banks and hedge funds.

The attached chart shows gold is trading above a trend line that starts from the metal’s low in January last year. A climb to $1,419 an ounce would equate to a 150 percent projection of bullion’s rally from January 2009 to its record in December, according to a series of numbers known as the Fibonacci sequence.

Gold “remains robust above its rising trend line,” and the recent rebound from a three-month low on Feb. 5 is a “bullish” signal, Bruno said in an interview. “We project about $1,400 within 12 months as long as the $1,000 level holds,” he said. (more)

Ireland, Greece and leaving the euro

The economic travails of Ireland and Greece have provoked a debate on the wisdom of the two most vulnerable members of the infamous PIGS (Portugal, Ireland, Greece and Spain) grouping of Eurozone members, on leaving the euro.
On Sunday, in an article in The Sunday Independent, economist and Group Business Editor of Independent Newspapers, Brendan Keenan, pointed out that both Ireland and Greece are largely dependent on foreign lenders to fund their public debt and suggested that if an exports boost did not follow from devaluation, leaving the euro could result in a more dire situation for a country than it had faced within the EMU (European Monetary Union). He says it depends on how sensitive a country's exports are to internal costs, and whether those costs rise quickly because of the increase in imported costs from the cheaper currency. Keenan concludes that those countries which think the balance of advantage for them lies with euro membership will have to tailor their policies to achieve growth within the single currency. Ireland has not yet done so. "We should worry less about debt and defaults and more about enhancing the economy itself," he says. (more)

China in record US debt sell-off

China sold a record amount of its US Treasury holdings in December, ceding its place as the world's biggest foreign holder of US debt to Japan.

According to Treasury figures released on Tuesday, Beijing sold off more than $34bn of its holdings in the final month of 2009, cutting its holding of US debt by just over 4 per cent to $755.4bn.

Japan now holds almost $11bn more US debt than China, with a total of nearly $769bn.

Japan had been the largest holder of US Treasury bonds until September 2008, when it was overtaken by China. (more)

Debt Dynamite Dominoes: The Coming Financial Catastrophe

The people have been lulled into a false sense of safety under the rouse of a perceived “economic recovery.” Unfortunately, what the majority of people think does not make it so, especially when the people making the key decisions think and act to the contrary. The sovereign debt crises that have been unfolding in the past couple years and more recently in Greece, are canaries in the coal mine for the rest of Western “civilization.” The crisis threatens to spread to Spain, Portugal and Ireland; like dominoes, one country after another will collapse into a debt and currency crisis, all the way to America. (more)

Buffett's Partner: 'It's Over' for U.S. Economy

Charlie Munger, Warren Buffett’s longtime business partner in Berkshire Hathaway, warns in a new column that the U.S. economic empire is crumbling before our eyes, thanks to federal debt and poor planning.

In an article penned for Slate.com, Munger uses the form of a parable to explain how Wall Street’s love affair with gambling has destroyed America’s Main Street.

The article leads with this headline: “Basically, It’s Over.”

The Berkshire Hathaway vice chairman describes the economic history of Basicland, which happens to match U.S. history.

Early in its history, debt is unknown except for home mortgages and some consumer loans, and people live within their means. Speculation is discouraged, and commodities markets are small and tightly regulated. (more)

Top Fed Official Warns Jobs Will Be Scarce As 'Paradigm Shift' Slows Hiring

A top Federal Reserve official warned Monday that even as the economy starts to grow again, employers are likely to continue squeezing more productivity out of workers rather than start hiring new ones, thereby prolonging the economic crisis for the millions of unemployed.

In remarks at the University of San Diego, Federal Reserve Bank of San Francisco President Janet Yellen said that rather than experiencing a "V-shaped recovery," the economy will continue to be sluggish and won't be operating at its full potential until 2013.

As reasons, she cited consumer anxiety due to the high unemployment rate; a housing sector that "could weaken again"; "very nervous and exceedingly cost-conscious" businesses; and a commercial real estate market that won't contribute to growth "for some time." (more)

European banks 'need €240bn a year in fund-raising'

The analysts, who include Stefan Nedialkov, said 24 European banks – accounting for almost 70pc of the sector's assets – will face an increased need for funds due to the volatility of the bond markets and new Basel III capital regulations.

The banks issued €56bn of long and medium-term funding in January, but investors' appetite for new issuance has fallen in February as concerns over the state of the European economy has grown.

This means that banks may have to offer a higher yield to attract investors in future. Citigroup estimate that the impact of increased funding costs on banks earnings may reach 10pc in a worst-case scenario.

Nonetheless, the analysts said, funding availability is unlikely to be a major issue for most banks before 2012, and the new stable-funding ratio regulations from Basel only appear onerous for a relatively small number of banks. (more)

Europe's monetary union has become an instrument of deflation torture

The Left called for war damages for Axis occupation and accused German banks of playing a "wretched game of profiteering at the expense of the Greek people".

Mainstream New Democracy was no nicer. "How does Germany have the cheek to attack us over our finances when it has still not paid compensation for Greece's war victims? There are still Greeks weeping for lost brothers," said ex-minister Margaritis Tzimas.

This is deeply hurtful to Germany, a vibrant democracy that has played its difficult part in Europe for 60 years with dignity. No country could have done more to overcome its demons. It has paid the EU bill, and paid again, rarely grumbling.

Yet a decade of monetary union has created such a wide and self-perpetuating gap between North and South that everything in EU affairs is poisoned. German-Greek relations are the worst in my lifetime. (more)

'Buy farmland and gold,' advises Dr Doom

The world’s most powerful investors have been advised to buy farmland, stock up on gold and prepare for a “dirty war” by Marc Faber, the notoriously bearish market pundit, who predicted the 1987 stock market crash.

The bleak warning of social and financial meltdown, delivered today in Tokyo at a gathering of 700 pension and sovereign wealth fund managers.

Dr Faber, who advised his audience to pull out of American stocks one week before the 1987 crash and was among a handful who predicted the more recent financial crisis, vies with the Nouriel Roubini, the economist, as a rival claimant for the nickname Dr Doom.

Speaking today, Dr Faber said that investors, who control billions of dollars of assets, should start considering the effects of more disruptive events than mere market volatility. (more)

Warning Signals on Debt

“Right now, the market thinks that Germany is a better credit risk than the U.S.” Chris Mayer reports. Indeed, if you own U.S. debt today and want to buy insurance against default, you will find that such insurance costs more than it does to insure German debt.

“I think that’s probably an anomaly,” Chris continues, “as I would bet that Germany is a poorer credit risk than the U.S. In any event, there is not much difference between the two. It’s a bit like choosing whether you’d rather flush your money down the toilet or burn it.

“Both countries are in danger territory, at least according to the work of economist Kenneth Rogoff. He looked at debt levels going back hundreds of years. Rogoff found that as a general rule, a country gets into trouble when external debt to GDP exceeds 60%. That means that the debt held by folks outside the country is about 60% or more of the size of the economy. The economy often contracts, and things can get ugly.

“If you look at the countries flashing warning signs right now, you find a meaty list of potential crises.

“So let’s see… any resemblances strike you? These are almost all Western countries. All the biggies are here: the U.S., Canada, Germany, France, the U.K. and Australia. Plus, four of the five so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain) and the usual suspects like Zimbabwe.

“I’ll tell you this: I can’t think of any lists you want to find yourself on with Zimbabwe.”

Agora Financial