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Currency

Signs of the Time - Currency Stocks Bonds Gold & Commodities

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Posted by Bob Hoye - Institutional Advisors

on Friday, 08 June 2012 12:35

"The European Central Bank has reached the limit of its mandate, especially in the use of non-conventional measures... In the end, these [efforts] are risks for the taxpayers.

"It's like morphine, the LTROs provide relief from the pain, but are not a cure for the illness."

--ECB Governing Council member Jens Weidman, May 25.

We have often thought that interventionism is the opiate of the intellectuals.

"Investors pulled $3.05 billion from junk-bond funds globally in the week ended May 23, the most since August."

--Bloomberg, May 25.

"Home prices drop 2% to post-crisis lows."

--Case Shiller, May 29.

“Consumer Confidence Plunges in May"

--Yahoo! News, May 29.

The Conference Board number for May is 64.9, down from 68.7 in April, which is the biggest hit since October.  The consensus was for 70.  February's 71.6 was the highest in a year.

Note that junk-bond withdrawals and consumer confidence have quickly moved to numbers seen at the culmination of the last crisis--away back last fall.

Does this suggest that current distress is culminating?

Not likely, but it is poised for some relief.

Last year's problems began to be revealed last May and culminated in late September.

CURRENCIES

The dollar has progressed to new highs for the move, as the sovereign debt crisis resumes.  The short squeeze on the DX, which is one of the features of a post-bubble contraction, continues. We had thought that the action would briefly pause at the 81 level reached in January. It only spent a few days there and with some drama has popped to almost 83.

And this is the story--drama as the world discovers that last year's "stimulus" is not working. Well, the global economy has been rolling over.

And yet, the establishment continues in its fanaticism that intervention will make a normal post-bubble contraction go away. Unfortunately, the rise in the dollar as well as yields in Euroland insist that it is not going away. Chart on Spanish bond yields follows.

However, last week we noted that the daily RSI had reached 77.7, which was a level that could limit the move. This is now at RSI 80 and that ended the last big rally, which was to 88.7 (for the index) in 2010.

This fits with the Euro now registering a daily Downside Capitulation.

Stability in the Euro would make most everyone think that the pressures are over and Ross's model has been reliable in signaling a rally.

This would fit with our outlook for choppy financial markets through the summer.

As instructive as it is, let's call it a mini-crisis that is close to ending with the dollar at a daily RSI of 80. A major crisis, as in 2008, could culminate with a weekly RSI out at the 80 level. Possibly later in the year.

COMMODITIES

Last week we noted that the CRB was getting as oversold, with an RSI at 22, as at the double bottom last fall. That was at the 281 level and it has dropped to 275 with an RSI at 21. Mainly, this seems to be due to this week's extension of weakness in crude oil and the fresh hit to natural gas. Cotton and sugar have seriously extended their 52-week lows. Cotton has plunged from 115 a year ago to 71 now. Sugar has dropped from 27 to 19.5.

This really confirms that a cyclical bear started from our "Forecaster" signal in 1Q2011.

However, base metal prices (GYX) at 363 have yet to take out last fall's low of 356. At an RSI of just under 30 it is getting oversold enough to limit the move.

The grain’s index (GKX) has dropped to 397 and is testing last December's low of 397. Who cares if it takes out the low, but where are the inflation bulls when you really need them?

It seems that most commodities are beat down enough to expect choppy action through the summer.

Stock Markets

Last week, the S&P got down to an RSI of 23 which could be the momentum low for the move. With this week's pressures the index has slumped to 1311, which we take as testing last week's low of 1292.

This will likely hold and general stock markets could be choppy through the summer. Perhaps another new paradigm is developing - - the "All-One-Chop" model?

Other than that, we are looking for a "Typical" summer. Pundits will describe each rise as a "Typical Summer Rally" and each set back will be a "Typical Summer Doldrum".

GOLD STOCKS RELATIVE TO BULLION

Picture 1

 

  • Gold’s have generally underperformed since the economy and orthodox investments arose out of the crash in mid 2009.
  • Base metal mining stocks outperformed the rise in base metal prices. That ended in 1Q2011.
  • The gold sector is preparing to outperform most every sector—on the planet.

Gold’s relative to S&P

Picture 3

SPANISH BONDS

Picture 4

BOB HOYE, INSTITUTIONAL ADVISORS

E-MAIL bobhoye@institutionaladvisors.com

WEBSITE: www.institutionaladvisors.com



 



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Currency

Merkel Bends on Spain - What’s next for the U.S. Dollar? QE3?

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Posted by Axel Merk - Reuters

on Thursday, 07 June 2012 07:33

Germany finalizing face-saving aid deal for Spain

The dismal U.S. jobs report for May, released last Friday, caused the price of gold to soar as the market appears to be pricing in an ever-greater chance of “QE3” – another round of quantitative easing by the Federal Reserve (Fed). But given that 10-year government debt is already down at 1.5%, the Fed may dive deeper into its toolbox in an effort to jumpstart the economy. Investors may want to consider taking advantage of the recent U.S. dollar rally to diversify out of the greenback ahead of QE3.

2012-06-05-bernanke-cartoon-qe3

 

o a modern central banker, it may be very simple: if the economy does not steam ahead, sprinkle some money on the problem. The Fed has done its sprinkling; indeed, the Fed has employed what one may consider a fire hose. But after QE1 and QE2, we continue to have lackluster economic growth, unable to substantially boost employment. Never mind that the real problem the global monetary system is facing is that the free market has been taken out of the pricing of risk:

.....read more HERE



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Currency

HYPERINFLATION Calls are so Wrong - Its DEFLATION in Your Future

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Posted by Mike Shedlock Mish's Global Economic Trend Analysis

on Friday, 01 June 2012 00:00

All of the hyperinflation calls have been missed by a mile. The dollar is strengthening, consumer credit is once again sinking, and treasury yields just made 60-year lows.

  • This is what happens when you fail to take into consideration:
  • Credit conditions Global economic conditions
  • Printing by other central banks especially China
  • Currency instability in Europe
  • Untenable situation in Japan

Every time the US dollar ticks lower, commodity prices tick higher, or the CPI rises two tenths of a percent, hyperinflationists come out of the woodwork with nonsensical predictions and silly comparisons to Zimbabwe or Weimar Germany.

220px-GermanyHyperChart
 
Given that the US dollar recently fell to the lower end of its trading range, hyperinflationists once again came forth with their message of impending doom.
 
....read why calls for Hyperinflation are so far off HERE and

(Ed Note: You can scroll down to the Headline "Alternate Nonsense" to get right to the Hyperinflation/Deflation argument). Mish's Global Economic Analysis has an even deeper study HERE



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Currency

U.S. Dollar and Euro - Exciting Opportunities

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Posted by Axel Merk of Merk Investments

on Thursday, 31 May 2012 08:27

Merk Sees Easing Around the World, to Benefit of Currencies and Commodities:

We continue to believe the currency asset class may provide investors with the opportunity to access enhanced risk-adjusted returns and valuable diversification benefits. We are excited about the outlook for the asset class and believe many investment opportunities continue to exist in the space.

....read more  about the oppportunities HERE

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Currency

Commodities Down, Dollar Up … and Why That Could Change Soon

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Posted by Larry Edelson - Uncommon Wisdom

on Tuesday, 22 May 2012 07:15

It didn’t take long for Europe’s sovereign-debt crisis to reassert itself. Here we are in May, a short three months after the last bailout of Greece, and Europe is crumbling again.

Greece is on the ropes, and will most assuredly have to splinter away from the euro and take back its currency, the drachma. It’s the only way Greece can get out of its depression. Dump the euro, take back the drachma, devalue it, and inflate its way out of the mess and out of debt.

Portugal is reeling again, too. Spain is also going down the tubes. Depositors are making runs on the banks. Moody’s has downgraded virtually the entire Spanish banking system. Spain’s stock market is at 20-year lows.

It’s not much better in Italy, the most-indebted country in Europe. And France isn’t far behind. Now that the Socialists lead the country, you can expect France’s fiscal situation to worsen.

Meanwhile, the only economy holding Europe upright is also starting to slow. Germany’s giant export machine is wobbling, and so is its economy.

So it should be no surprise to you that stock markets are falling now. In order of weakness: Europe is the most-vulnerable, U.S. stocks are the second-weakest, and Asia’s equity markets are the least-weak of the three corners of the globe. Latin American markets will generally follow the U.S. markets.

But what about commodities? It’s certainly understandable that economic weakness would also take its toll on demand-sensitive commodities such as copper, foods, other base metals, and the like. After all, if economies are sinking anew, demand for these commodities is sure to fall.

And that’s precisely what I’ve predicted for the commodity sector. I was perhaps one of the only commodity bears out there for the past several months, but now my warnings are coming true. We’re seeing a sharp decline in most commodity prices.

The big question on most investors’ minds is why gold and silver are also falling. After all, when governments are on the verge of collapsing, shouldn’t that be bullish for gold and silver?

Under certain circumstances, yes. But not always. If the peripheral economies are collapsing, and their governments are under social attack, like what’s happening in Europe, then it’s not all that bullish for gold and silver. The core of the global economy, the U.S. and the U.S. dollar, can still suck up much of the frightened capital.

Again, that’s precisely what I warned, and precisely what’s happening. As scared capital flees Europe — it’s going primarily into cash, and into the U.S. dollar.

That’s pushing the U.S. dollar up, and taking the shine off of precious metals. Plus, always keep in mind that at the beginning of a crisis like we have now in Europe, investors want cash above all else. So gold is not the king right now. Cash is king.

That’s all going to change soon, because the world’s central banks despise runs to cash … they despise falling asset prices … and they absolutely abhor disinflation or, even worse, outright deflation.

So that means that central banks are soon going to start printing massive amounts of money again, flooding the global economy with trillions of additional dollars.

sc

And when they do, you could just as easily see gold and silver bottom out and begin the next legs up in their bull markets.

I believe that’s not too far away. But it’s likely we will see further declines first. My models tell me that we are not yet at asset price levels that would send central banks into panic mode, forcing them to put the pedal to the metal with their money printing.

Here’s what my models are telling me. Look for further declines ahead …

 

  • Down to below $1,440 in gold
  • Down to below $26 in silver, to as low as $21
  • Down to below $85 in oil
  • Down to below 12,000 in the Dow Industrials

 

And mark my words: When the commodity markets do bottom out and central banks start printing money again — it will represent the beginning of the biggest phase yet in the commodity bull markets.

So get ready, because it’s right around the corner.

Best wishes, as always …

Larry

 

Larry Edelson has nearly 33 years of investing experience with a focus in the precious metals and natural resources markets. His Real Wealth Report (a monthly publication) and Resource Windfall Trader (weekly) provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management.

For more information on Real Wealth Reportclick here.
For more information on Resource Windfall Traderclick here.



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