Gerald Celente - Trends 2012 - Coast to Coast AM - 05 January 2012

Gerald Celente - Coast to Coast AM - 05 January 2012 : Gerald Celente is on Coast to Coast for a three hours long interview to lay down his top trends for 2012 and where he sees America and the world headed to . Some of Gerald Celente's top trends for 2012 are Economic Martial Law , Battlefield America , Invasion of the "Occtupy , Alternative Energy 2012

Physical Silver Surges To Record 30% Premium Over Spot, In Backwardation

One of the main reasons why we have been not so focused on paper representations of real currencies (i.e., gold and silver) is that ever since the MF Global debacle, in which it became all too clear that if physical gold can be "hypothecated" via conflicting ownership, then there is no way that paper versions of precious metals are viable and indeed credible. After all, the only real owner at the end of the day is the certificate holder, which as we have explained before, is none other than DTCC's Cede & Co. Good luck collecting when the daisy chain of counterparties starts falling. Which leaves physical. And for a good sense of what the "real" price of the metal is, not one determined by institutions whose interest it is to preserve the hegemony of paper, one can either try to procure gold and silver at a retail merchant, or one can look to the premium of a dedicated physical ETF over spot. Such as Eric Sprott's PSLV which as of today is trading at an all time high premium of 30%! In other words, someone is willing to pay up to 30% over spot for the right to be closer to the physical metal than merely have a paper claim on a paper claim (pre hyper rehypothecation and what not). Incidentally the last NAV premium over spot record was back in April 2011 just as silver went parabolic and the entire commodity complex experienced the infamous May 1 takedown when it collapsed by $8 dollars in milliseconds on glaringly obvious coordinated intervention. Said otherwise, like back then, so now there is an actual shortage, manifesting itself in the premium. And while last time its was the price plunge which eased supply needs, we are not so sure how one will be able to spin a collapse of the current, far lower paper silver price.

But wait, there's more: As Keith Weiner explains below, silver also happens to be in backwardation. While we have covered the topic before, here is Keith with his explanation of what this means, although for those who like the punchline here it is, as above: shortage.

The Arbitrageur: Silver In Backwardation

March silver has been flirting with backwardation since the end of 2011, and today it has moved more firmly into backwardated territory. This is extremely bullish for silver, and let me explain why.

Backwardation means (and I am oversimplifying a bit here) that a futures contract is cheaper than buying the physical good in the cash market. To understand the meaning of this, the first question is this: Is it possible to warehouse the good? If not, then the futures market is simply the market’s opinion of what the price is likely to be on the contract expiration.

Silver, unlike interest rate futures for example, can be warehoused. This means it is possible to simultaneously buy physical silver in the spot market and sell a future in the futures market. One has no net exposure to the price. One is exposed only to the spread. This is a simple arbitrage. One can “carry” a good (buy spot, sell future).

The possibility of this and other arbitrages in a good that can be warehoused changes the whole structure of the futures market. One cannot look at the price of March silver as a prediction of the March price. Absent a shortage or other anomaly, the March price should be close to the spot price + the cost of carry (interest rate and storage). March silver should be at a slight premium to spot silver. This condition is normal, and it is called “contango“.

But that is not the case for March silver (or Jul 2013 and beyond). Those contracts are priced too low for anyone to make any money carrying silver. Instead, it would be profitable to de-carry silver. See the graph for a picture of the basis (the annualized profit one would make to carry) and the cobasis (the profit to de-carry). The basis is negative and falling; the cobasis is positive and rising.

A de-carry is the inverse of a carry. One simultaneously sells silver, and buys a future against it. Silver (and gold) are unlike all other commodities in that the above-ground inventories are massive, compared to annual mine production. Whereas in wheat, for example, there is a genuine shortage before the harvest. If one wants to buy wheat two weeks prior, one must pay a large premium compared to the first contract settled after the harvest.

In a normal commodity, backwardation means shortage. The backwardation develops because no one has any of the physical good. So they cannot decarry it, and thus the spot-future spread can go deeper and deeper into backwardation.

But in gold and silver it means something else entirely. People have the metal. But for whatever reason(s), they choose not to take this free money. In the silver market right now, trust is in short supply. In the past (think fall 2010 through spring 2011), this has been resolved by sharply rising prices which coax fresh metal out of hiding.

BEAR MARKET FOR THE EURO CURRENCY IN 2012

This week’s selling in the euro took prices to a 15-month low against the U.S. dollar and a 10-year low against the Japanese yen. The euro remains under pressure after a report showed the rate of inflation in the euro zone slowed. This enhanced the case for additional easing of credit from the European Central Bank, which is bearish for the euro from an interest rate differential point of view. In addition, there are renewed concerns about the financial health of the euro zone.

EURO CURRENCY FUTURES - WEEKLY CONTINUATION

Chart provided by APEX

Much of the pressure on the euro was linked to news that Italy auctioned only 7.02 billion euros of debt in a recent auction, which was short of the anticipated target level of 8.5 billion euros. In addition, there is a lot of Italian debt to be refinanced in an environment where the longer dated maturities of Italian debt offerings are becoming more difficult to sell. In just the February through April period of 2012, Italy needs to refinance almost 150 billion euros of debt. Lower yields are imperative for Italy to be able to service their debt burden. The 7% and above level is considered to be critical, since it is where yields on Greek, Irish and Portuguese debt increased to before they sought bailouts from the European Union. Some analysts believe Spain will soon be having the same financial problems that Italy is experiencing now.

In addition, there is a growing feeling that euro area financial institutions will be forced to raise more capital. Highlighting the concern was the decline in the share price of the largest lender in Italy to the lowest level since 1992 after the company said it will sell new shares on January 9 at a price that is substantially below their book value.

Recent commentary from euro zone leaders has not helped the cause of the bulls on the currency of the euro zone. For example, Spain’s Economy and Competition Minister recently said the country’s economy is in “relapse” and will contract. Greek Prime Minister Lucas Papademos did no favors for the euro when he said Greece may be forced to contend with an economic collapse as soon as March.

Not all of the news from the euro area is bearish, however. For example, the euro temporarily gained after a report showed German unemployment declined in December by more than analysts expected. The Federal Labor Agency reported unemployment in Germany declined 22,000 to total 2.89 million. A 10,000 decline in unemployment had been predicted by economists.

In addition, there was temporary support for the euro after Italy’s Prime Minister, Mario Monti, said an economic growth package will be presented to European Union finance ministers on January 23. He did not rule out the possibility of proposing a plan that would include more aggressive efforts to reduce government debt.

The euro initially firmed on news that the European Central Bank planned to loan 523 euro area financial institutions 489 billion euros, which is a record amount of funds, for three years. Analysts were anticipating the amount of the loans would total only 293 billion euros. The value of euro currency futures came under pressure in a delayed reaction when traders and analysts reassessed the market impact of the larger than anticipated loan totals.

It took a while, before traders correctly reassessed the implications of the massive loans and decided the market impact was a net negative, since the larger amount of funding asked for by euro area banks was actually a sign of financial distress.

More recent pressure on the euro came from a report that showed German retail sales declined .9% in November, when the median estimate called for a .2% increase. Also, some of the recent weakness in the euro was attributed to the lukewarm demand for the 10-year German bund auction.

MORE REASONS TO BE BEARISH ON THE EURO

1) There is a feeling that the European Central Bank will need to add more reserves to the banking system, which is bearish for the euro from an interest rate differential point of view.

2) Any recover gains in the euro are likely to be limited by threats from major credit rating agencies to lower the AAA credit rating of France.

3) There is a growing feeling that the debt crisis in the euro area will continue well into this year.

4) Our analysis suggests the euro zone economy will enter into recession in the first half of 2012.

The main trend for the euro currency is lower, with the next downside chart objective coming in at 1.2500.

Kiplinger's Personal Finance - February 2012

Kiplinger's Personal Finance - February 2012
HQ PDF | 76 pages | 101.5 Mb | English

Kiplinger's Personal Finance magazine provides intelligent advice and sound reporting on topics regarding personal finance issues. Find information on investments, taxes, insurance, retirement and savings in Kiplinger's Personal Finance magazine.


read it here

What is the European TED Spread Signaling?

Angst about the European debt malaise reappeared yesterday, with the Greek bailout being delayed and France seeing its debt costs rise at its first bond auction of the year.

In order to gauge whether credit conditions in Europe are improving or worsening, I am keeping a close eye on the so-called TED spread, specifically the European TED Spread. This is a handy measure of perceived credit risk in the European economy. The spread is simply the three-month euro LIBOR rate less the three-month Euro Generic Government Bond rate. The Euro Generic Government Bonds are considered risk-free (if there is still such a term) while LIBOR reflects the credit risk of lending to commercial banks. The TED spread therefore reflects the premium in the interest rate banks charge each other versus the cost of borrowing from the European Central Bank (ECB).

It therefore follows that an increase in the TED spread is a sign that lenders believe the risk of default on interbank loans (also known as counterparty risk) is increasing. On the other hand, the TED spread narrows when the risk of bank default is considered to be decreasing.

The short- and long-term charts of the TED spread below show that the spread had increased quite sharply since June this year, but peaked with the announcement of the ECB’s long-term financing operations (LTRO) in December 2011, i.e. the ECB making cheap 3-year loans to European banks. Confidence in interbank lending has started improving, but the European TED spread needs to show a more meaningful decline in order for a calmer environment to prevail.

Source: Fullermoney.com

Hellmeyer Video Interview – Europe Inflation Gold

Here’s an interesting view on Europe and America from a European’s perspective. James Turk interviews Volker Hellmeyer who addresses quite a few issues Americans simply do not focus upon. So for those of you interested in analyzing the current situation from a different angle, this is a must see video interview. It never hurts to get exposure to contrasting views in order to stay balanced. In a nutshell he sees much higher gold prices in 5-10 years, he thinks Europe is not in such a bad shape and he talks about the structural problems America needs to tackle.

Something that comes to mind here is what bull and bear markets are all about:

Bull markets are about unity, bear markets are about division.

What we are witnessing right now is nations focusing on other nations weaknesses. America is bashing Europe in order to distract from their own problems. Europe is pointing to America’s structural problems and accounting issues in order to distract from their problems. My point is: This is not about being right or wrong. The name of the game is “rotation”. The focus is now on Europe. It’s everyone’s guess how long that will be the case. Then the focus will shift. Then we repeat the process. As a trader my job is to keep in check strong opinions. Instead, I try to gauge sentiment and then focus on timing my trades. Then I manage risk with open positions. Enjoy the video!

Chart of the Day - Brookfield Infrastructure Partners LP (BIP)

The "Chart of the Day" is Brookfield Infrastructure Partners LP (BIP), which showed up on Wednesday's Barchart "All Time High" list. Brookfield Infrastructure on Wednesday posted a new all-time high of $28.66 and closed up 2.14%. TrendSpotter has been Long since Nov 11 at $26.34. In recent news on the stock, TD Asset Management on Nov 8 reported at 5.49% passive investment in Brookfield Infrastructure. Brookfield Infrastructure on Nov 4 reported Q3 EPS of 39 cents, well above the consensus of 30 cents. Credit Suisse on Nov 2 reinstated research on BIP with an Outperform and a target of $32. Brookfield Infrastructure Partners, with a market cap of $3.6 billion, was established by Brookfield Asset Management as its primary vehicle to own and operate certain infrastructure assets on a global basis. Current assets include ownership and operation of electricity transmission systems and timberlands in North and South America.