Friday, May 7, 2010

Shortage of Physical Gold Bullion?

“I have no proof the rumor is true,” adds Egon von Greyerz of Matterhorn Asset Management in Switzerland. But “a lot of people who have studied it closely are convinced that there is a major shortage in physical gold at LBMA. LBMA trades around 700 tons net of gold daily. That is 25% of world annual production and around $6 trillion annually. To back that amount of trading on a 100% reserve ratio basis, it would need several year’s production of physical gold, which they definitively haven’t got.

“So as I have argued many times, LBMA, Comex, and the banking system as a whole has only of the fraction of the gold required to settle outstanding contracts when investors demand physical delivery. In addition, central banks have leased their gold to the LBMA member banks for years in order to suppress the gold price.

“Of the 30,000 tons that central banks are supposed to hold, I would be surprised if they have even half of that.”

Electronic Trading to Blame for Plunge, NYSE Says

Computerized trades sent to electronic networks turned an orderly stock market decline into a rout today, according to Larry Leibowitz, the chief operating officer of NYSE Euronext.

While the first half of the Dow Jones Industrial Average’s 998.5-point plunge probably reflected normal trading, the selloff snowballed because of orders sent to venues with no investors willing to match them, Leibowitz said in an interview on Bloomberg Television.

“If you look at the charts you can see fairly clearly where the trades came in,” he said from New York. “It’s that V-shaped drop where it came down and snapped right back up. You had some very high-cap stocks trading down 50 percent or large percentages in a split instant because there really was no liquidity in electronic markets.” (more)

David Rosenberg: Euro Breakdown Could Drive Gold to $3,000

Gluskin Sheff analyst David Rosenberg says the breakdown of the euro could well drive the price of gold to $3,000.

"The case for gold heading to $3,000 an ounce is getting stronger by the day," Rosenberg writes in a note to investors.

"The euro has already broken below 1.30 to the U.S. dollar and there is plenty of room for additional decline going forward."

"It's only at a one-year low — wait until it moves to a decade low." (more)

Gold, the Euro, and German Hyperinflation

With or without hyperinflation, today’s welfare-state obligations — just like 1919’s war reparations — are simply too big to be paid…

The Eurozone’s problem? In short, it’s history…precisely what the single currency was supposed to neuter, of course.

Greece’s still-pending €110bn bail-out has already cost three lives in Athens’ riots yesterday. More bloodshed inside Western Europe would make a horrific end for this grandest of grand post-war projects…the crowning achievement of Europe’s longest-ever period of peacetime. (more)

Paulson: U.S. Wasn't Prepared to Deal With Meltdown

Henry Paulson said Thursday there was no plan in place for the government to deal with a financial disaster when he became Treasury secretary in 2006 but that he worked to reduce potential risks as soon as he took office.

At the same time, Paulson cautioned against overreaching on financial overhaul legislation now before Congress that he said could stifle innovation in the markets.

Paulson testfied at a hearing of a special panel investigating the financial crisis and the so-called "shadow" banking system.

"There wasn't a plan in place when I arrived," he said, adding that the system of financial regulations was marked with big gaps as complex markets proliferated outside government oversight. (more)

S&P E-mini Weekly Chart

IMF cannot afford to bail out the rest of Southern Europe

Can the International Monetary Fund afford it if the rest of Europe’s ring of fire (Portugal, Spain and Italy, in descending order of crisis) starts to crumble? My back-of-an-envelope calculations don’t look good.

Here’s the logic. The IMF currently determines how much it can lend to a country based on the “quota” that country provides towards the IMF’s own funding. The quota is usually more or less proportional to the size of that country’s economy, though the quotas haven’t been updated for a while so are a little out of date (but let’s not get bogged down with that now).

The IMF is currently lending Greece €30bn (about $39bn) towards the combined EU-IMF bail-out package for the troubled nation. This is just under 32 times its quota. It is, for what it’s worth (a lot), the biggest IMF bailout in the Fund’s 65 year history. The previous record was held by Korea which borrowed 20 times its quota in 1998. (more)

Glitches send Dow on wild ride

In one of the most gut-wrenching hours in Wall Street history, the Dow plunged almost 1,000 points Thursday before recovering to close down 348, as erroneous trading in Procter & Gamble and several other stocks sparked a massive selloff.

Fears about the spread of the European debt crisis dragged on stocks through the early afternoon. But the selling picked up in intensity and the Dow reached its nadir at around 2:40 p.m. ET. (more)

Dow Sheds 350 in Wild Selloff; VIX Tops 34

Stocks staged one of the most dramatic selloffs in market history Thursday as what may have been a trader error exacerbated losses in a market already jittery about the European debt crisis.

The Dow ended down 347.80, or 3.2 percent, at 10,520.32, after being down as much as 998.50 earlier, the Dow's biggest intraday drop on record. Treasurys surged.

Under current, New York Stock Exchange rules, if the market falls ten percent or more between 2:30 and 3:00 pm ET, trading is halted for 30 minutes. At its worst point, the Dow was down between 8 and 9 percent today. (more)

CNBC's Bartiromo: 'That is Ridiculous. This Really Sounds Like Market Manipulation to Me'

While everyone is scratching their heads and trying to figure out how the Dow Jones Industrial Average (DJIA) lost nearly 1,000 points before rallying back to lose only 347 points – it appears not to be limited to just one stock.

On CNBC’s May 6 “Closing Bell,” correspondent Matt Nesto explained that investigators for both the stock exchanges and for Citigroup, the firm that some are pointing fingers at for a so-called trader error, have narrowed it down to a futures index called the E-mini S&P 500. (more)

Chart of the Day