Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21
CISCO 2020 Dot com Bubble Stock vs 2021 Bubble Tech Stocks Warning Analysis - 6th Oct 21
Precious Metals Complex Searching for a Bottom - 6th Oct 21
FB, AMZN, NFLX, GOOG, AAPL and FANG+ '5 Waves' Speaks Volumes - 6th Oct 21
Budgies Flying Ability 10 Weeks After wings Clipped, Flight Feathers Cut Grow Back - 6th Oct 21
Why Silver Price Could Crash by 20%! - 5th Oct 21
Will China's Crackdown Send Bitcoin's Price Tumbling? - 5th Oct 21
Natural Gas News: Europe Lacks Supply, So It Turns to Asia - 5th Oct 21
Stock Market Correction: One More Spark to Light the Fire? - 5th Oct 21
Fractal Design Meshify S2, Best PC Case Review, Build Quality, Airflow etc. - 5th Oct 21
Chasing Value with Five More Biotech Stocks for the Long-run - 4th Oct 21
Gold’s Century - While stocks dominated headlines, gold quietly performed - 4th Oct 21
NASDAQ Stock Market Head-n-Shoulders Warns Of Market Weakness – Critical Topping Pattern - 4th Oct 21
US Dollar on plan, attended by the Gold/Silver ratio - 4th Oct 21
Aptorum Group - APM - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 3rd Oct 21
US Close to Hitting the Debt Ceiling: Gold Doesn’t Care - 3rd Oct 21
Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
Original Oculus VR HeadSet Rift Dev Kit v1 Before Facebook Bought Oculus - 3rd Oct 21
Microsoft Stock Valuation 2021 vs 2000 Bubble - Buy Sell or Hold Invest Analysis - 1st Oct 21
How to profit off the Acquisition spree in Fintech Stocks - 1st Oct 21
�� Halloween 2021 TESCO Shopping Before the Next Big Panic Buying! �� - 1st Oct 2
The Guide to Building a Design Portfolio Online - 1st Oct 21
BioDelivery Sciences International - BDSI - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 30th Sep 21
America’s Revolving-Door Politics Behind the Fall of US-Sino Ties - 30th Sep 21
Dovish to Hawkish Fed: Sounds Bearish for Gold - 30th Sep 21
Stock Market Gauntlet to the Fed - 30th Sep 21
Should you include ESG investments in your portfolio? - 30th Sep 21
Takeda - TAK - High RIsk Biotech Stocks Buy, Sell, Hold Investing Analysis for the Long-run - 29th Sep 21
Stock Market Wishing Away Inflation - 29th Sep 21
Why Workers Are NOT Returning to Work as Lockdown's End - Wage Slaves Rebellion - 29th Sep 21
UK Fuel PANIC! Fighting at the Petrol Pumps! As Lemmings Create a New Crisis - 29th Sep 21
Gold Could See Tapering as Soon as November! - 29th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Reacting to Central Bank Money Attempting to Prevent Collapsing Credit Bubble

Commodities / Credit Crisis 2008 Feb 21, 2008 - 01:45 PM GMT

By: Christopher_Laird


Best Financial Markets Analysis ArticleBottomless financial pits - With gold again having a try at $1000, speculators aside, one wonders how far that has to go?

Well, for one thing, Central Banks have posted about only $2trillion worth of financial injections and bailouts since only August 07 to combat the credit collapse. 

In recent weeks, the German banking crisis had its latest manifestation . German banks are again in crisis mode, and needing more bailouts. When the credit crisis exploded last year, German bankers stated that it was the worst crisis since the 1930's, when German banks collapsed headlong and caused a European banking crisis amidst the Great Depression.

German State Owned banks on verge of collapse
By Wolfgang Reuter

The German government has had to bail out state-owned banks with taxpayers' money after their managements recklessly gambled away billions on subprime investments. But if a state-owned bank were to go under, the consequences could be disastrous for the whole economy.

… As the head of KfW, Matthäus-Maier is a major shareholder in IKB, the Düsseldorf-based bank that is on the brink of bankruptcy and is only being kept afloat by a series of government bailouts running into the billions (more...). Last week was marked by one crisis meeting after the next - Feb 20 08

And England just stated they will have to nationalize Northern Rock because there are no buyers interested in a big stake. That costs English taxpayers something like $100 billion.

Then, we hear that the ever present US bond insurers MBIA and AMBAC are at risk of being broken up by NY regulators who gave them 3 to 5 business days last week to get organized (money) or face a possible break up. Time runs out.

And, we haven't even touched on the $200 billion in losses to US investment banks and financial institutions to date, with ever expanding losses popping up, as with UBS this week. They thought they had that dragon slain, but it was not dead. More losses appear.

Now Asian banks next?

Then, we hear that the Asian banks might be hiding some big losses as well related to mortgage derivatives, and you ask why? Because the losing mortgage derivatives such as CDOs, MBS, etc are something like $3 trillion, and since these are being discounted so far by various credit indexes by about 10% or more, we are looking at about $400 billion in losses out there, at least… and where are the other $200 or so that no one has reported? Asia likely. They have been heavy buyers of these mortgage derivatives. As like last time (90's), they may be hiding the losses from view. In about a month, we are going to see some shoes dropping in that arena, as they have to report financials in March.

CB cuts not doing much

Even as the US Fed has cut about 2.25% on its target rates, 30 yr mortgages were not declining significantly. Some credit spreads in Libor have narrowed, but overall the credit mess is spreading.

We have not gotten to other collapsing credit sectors and the losses that will engender, such as consumer credit, auto loans, etc. 

Corporate finance/bonds are in trouble. Municipal bonds are in trouble. Those markets have been infected by expected losses that mortgage derivatives are inflicting on municipalities and corporations who have invested in various derivatives. So their bonds are going up in yield/cost.

But, in any case, the overall problem is a collapsing world credit bubble. US mortgage derivatives were only the detonator. As central banks frantically try to stem the losses accumulating on the books – in banks, corporations, municipalities, and households, practically every sector of the economy is in financial contraction as credit contracts drastically.

It's a big bottomless credit loss pit that yawns before the big world central banks. Their $2 trillion plus efforts to stem the collapse of credit are barely affecting credit markets. In fact, contracting credit markets are far outrunning CB efforts to combat it.

Gold started its latest rise to threaten $1000 in August. If you look at a chart of gold prices since then, the big rally to these $900 plus levels started when the credit crisis started to explode in Aug/Sept.

Basically, gold is reacting to all the CB money as they try to control a collapsing world credit bubble.

Of course, speculators as well are all over gold, oil and some other commodities. Inflation is a problem in the US and EU, and is going to restrict the needed interest rate cuts by their central banks. Stagflation forces emerge. Gold loves that.

Gold could correct, but frankly, the overriding macroeconomic forces are stagflation and the black hole credit bubble collapse. This very restrictive on CB options. If they don't cut rates (the only hope for this collapsing credit collapse is further big interest rate cuts before it's too late) we get real deep recession and massive credit losses. If they do cut rates, we get more inflation and gold will love that. This is a win win situation for gold.

Of course, one thing we all need to realize, as a caution, is that we might see a big world stock collapse. That would hit gold rather hard at first. But, ultimately, we see gold going well over $1000 and staying there, and people will remember when they could have bought gold at under $1000.

Gold can indeed correct from these $900 plus levels technically, but the overriding macro trends are stagflationary and very gold bullish into 08.

By Christopher Laird

Copyright © 2008 Christopher Laird

Chris Laird has been an Oracle systems engineer, database administrator, and math teacher. He has a BS in mathematics from UCLA and is a certified Oracle database administrator. He has been an avid follower of financial news since childhood. His father is Jere Laird, former business editor of KNX news AM 1070, Los Angeles (ret). He has grown up immersed in financial news. His Grandmother was Alice Widener, publisher of USA magazine in the 60's to 80's, a newsletter that covered many of the topics you find today at the preeminent gold sites. Chris is the publisher of the Prudent Squirrel newsletter, an economic and gold commentary.

Christopher Laird Archive

© 2005-2019 - 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