Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Monetary Flood, Nothing At All, Then All at Once

Stock-Markets / Liquidity Bubble Feb 09, 2013 - 10:57 AM GMT

By: Adrian_Ash

Stock-Markets

Where money was tight, suddenly it's all arrived at once. Just like trouble does...

Everywhere we look, investors suddenly see nothing but blue skies, plain sailing ahead. Their change of heart makes us nervous, writes Adrian Ash at BullionVault.

New York's S&P index is back where it stood in July 2007 - right before the global credit crunch first bit, eating more than half the stock market's value inside 2 years...


Japan's Nikkei index has jumped by one third since mid-Nov., thanks to export companies getting a 20% drop in the Yen - the currency's fastest drop since right before the Asian Crisis of 1997...

And here in the UK - where the FTSE-100 stock index just enjoyed its strongest January since 1989, when house prices then suffered their biggest post-war drop - average house prices are rising year-on-year, even as the economy shrinks...

The common factor? Zero interest rates and money creation on a scale never tried outside Weimar Germany or Mugabe's Zimbabwe. Only the Eurozone has stood aside so far, and even then only a little. And yet gold and silver - the most sensitive assets to money inflation - are worse than becalmed.

Daily swings in the silver price haven't been this small since spring 2007. Volatility in the gold price has only been lower than Thursday this week on 15 days since the doldrums of mid-2005. Back then the Dollar also steadied and rose after multi-year falls. Industrial commodities outperfomed 'safe haven' gold too - a pattern echoed here in early 2013 by the surge in the price of useful platinum over industrially 'useless' gold.

Perhaps the flat-lining points to better times ahead. Gold after all is where retained capital hides when things are bad - a store of value to weather the storm. Or it may signal itchy feet in the 'hot money' crowd, now moving back into stocks and shares instead. But we can't shake the feeling that something awful is afoot. Gold and silver aren't making headlines today. Just like they didn't before the financial crisis began.

"Japan is on an unsustainable path of a strong Yen and deflation," wrote Andy Xie - once of Morgan Stanley, now director of Rosetta Stone Advisors - back in March 2012.

"The unprofitability of Japan's major exporters and emerging trade deficits suggest that the end of this path is in sight. The transition from a strong to weak Yen will likely be abrupt, involving a sudden and big devaluation of 30 to 40 percent."

Already since the Abe-nomic revolution announced in November the Yen has dropped more than 20% versus the Dollar. But "there is plenty of liquidity still parked in the Yen," Xie noted this week. Quite apart from the shock to America's trade deficit which surging shale-oil supplies deliver, "The Dollar bull is due less to the United States' strengths than the weaknesses in other major economies," he adds. And reviewing the last two major counter-trend rallies in the Dollar's otherwise permanent decline, "The first dollar bull market in the 1980s triggered the Latin American debt crisis, the second the Asian Financial Crisis. Neither was a coincidence."

Neither of those crises coincided with a bull market in gold or silver. Savers worldwide chose Dollars instead as the hottest emerging-market investments collapsed. But then neither of those slumps saw emerging-market central banks so stuffed with money, nor gold and silver so freely available to their citizens.

China's gold imports almost doubled last year, with net demand overtaking India for the world's #1 spot at last. This week the People's Bank of China pumped a record CNY860bn into the money markets ($140bn), crashing Shanghai's interbank interest rates by almost the whole one-percent point they had earlier spiked ahead of the coming New Year's long holidays.

The disparity, meantime, between the doldrums in precious metals and the bull market in Dollar-Yen trading can be seen by glancing at the US derivatives market. Yesterday the CME Group cut margin requirements on gold and silver futures. It raised the margin payments needed to play the Yen's lightening drop. One of those moves is likely bullish, short-term. But you'd to borrow money to choose.

Western pension funds are meanwhile pulling out of commodities, and just as liquidity floods back into the market. Both the Wall Street Journal and the Financial Times report how big institutions have quite hard assets "after finding they did little to protect their portfolios against inflation risk and the unpredictable returns of stocks." One of the biggest commodity hedge funds, Clive Capital has shrunk from $5 billion under management two years ago to less than $2bn today. And yet European banks - the major source of credit to commodities traders - are now reviving their commodities lending.

"The sector came close to panic 18 months ago," says the FT. But now "The banks want to be again my best friend," says a Swiss executive. "Funding concerns have now substantially dissipated," says SocGen's head of natural resources and energy finance, Federico Turegano.

There's plenty of money around to borrow, in short. Whether in Chinese banking, currency betting or commodities trading, where there was very little at all, suddenly it's all turned up at once. Which is just how trouble arrives. All that central-bank liquidity and quantitative easing has so far left consumer-price inflation unmoved, too.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules