Thursday, December 29, 2011

December, Thursday 29, 2011

DOW +135 = 12287
SPX +13 = 1263
NAS +23 = 2613
10 YR YLD -.01 = 1.90
OIL +.45 = 99.81
GOLD – 10.80 = 1546.50
SILV +.62 = 27.87
PLAT –18.00 = 1377.00

You always have to be careful when you read the news or watch it on TV or listen to it on the radio or the web of internets. Take this snippet from the AP:
“The European Central Bank said banks had parked $590.72 billion with it overnight, surpassing the record set only Monday. That means European banks were less willing to take the risk of making short-term loans to each other, opting instead to earn low interest rates from the ECB.
The move shook confidence in the euro currency, which dropped to $1.2910 at one point on Wednesday — its lowest level against the dollar in nearly a year.”
It seems fairly straightforward, however the big problem is that the bankers aren’t earning anything – they are being given a gift – a gift of money stolen from taxpayers. The banks are not working for the money, they are not producing anything, and you would have to be brain dead to believe the banks are “earning” anything in this situation. The next problem is that European banks aren’t making short-term loans to each other because they all know what they have on their own books, and if the other banks hold the same garbage on their books (and they do) then all the banks are essentially insolvent and only being kept afloat by central bankers.
Investors are aware that in a crisis: Investors will fail to roll debt if they are not confident in the health of an institution; and if sufficiently many investors fail to roll an institution’s debt, then that institution may fail. This means that the key question for a funder is not Is the institution I am considering funding solvent? but rather Will most other potential funders consider the institution solvent?
And then you say, “So what? Je ne suis pas un European taxpayer. Nao e importante. Capito?”
So, what is the Federal Reserve’s role in this mess? Well, the Fed has opened up swap lines and the discount window to banks, both foreign and domestic – and how many taxpayer dollars is the Fed willing to risk $50 billion, $500 billion, more? We may only find out in the richness of time. By some estimates, there are 6 European sovereigns in serious trouble to the tune of $6 trillion. Of course, that is not all at risk, unless it all goes terribly wrong – and it almost certainly will not go terribly wrong. The new $650 billion dollar Long-Term Refinance Operation rolled out last week, and it will probably give the banks enough funds to keep the doors open for a year or two- maybe three. European banks have borrowed 5% of GDP from the new ECB loan plan, a sort of back door QE. Most banks will use the funds to roll debt in 2012.
That’s all fine and good, but this is nothing more than slow motion devaluation and sure enough, the Euro is falling – new lows for the year.
Notice the last few weeks: The euro and gold falling in tandem.  This is not a coincidence.

We have to remember the situation we are currently in. Apart from a sovereign debt crisis, we have a financial crisis in Europe: The European banks are in terrible shape. They are all in terrible condition, one and all. But then so are the American banks.

Because of this, when the euro falls against the major currencies, banks around the world are forced to shore up their capital requirements: The falling euro hits their capital tiers, forcing them to sell off assets in order to cover the hole in their balance sheet.

What commodity or investment has been rising steadily over the past three years? What asset class is the only sure bet against currency collapse? Gold, obviously—and gold is fungible with any currency, instantly.

And what we will see again—is major players exiting gold positions in order to cover holes in their balance sheets. In fact, from here on out, every time there is a big fall in any major currency, we can expect an attendant fall in the price of gold and silver.

Right now, we are seeing this in the eurozone: The euro broke through that magic $1.30 barrier—and gold fell like a rock. This is the bad news.

The good news? These falls are technical, predictable, momentary, and they are an opportunity.

The fundamentals of the situation are unchanged: The major countries are over-indebted, with over-leveraged banks on the edge of insolvency. The only solution is for currency devaluation, in order to cut the real cost of these massive loans without causing an outright default or bankruptcy.

Gold and silver will counteract this currency devaluation; they serve as hedges.

Pullbacks in gold are fairly predictable. These pullbacks will be because of two reasons: One is speculators—who are obviously riding the precious metals bandwagon—who will periodically get spooked and decide to cash out their winnings. The second reason for these jolting pullbacks in precious metals will be because large institutions will need to cover their capital requirements, in the face of the collapse in the currencies.

When this happens, you have to remember two things: One, it is momentary, and two, it is a time to buy – or at least gold is setting up as a buy – I can’t tell you the exact timing on when to buy – I can only tell you that you will most probably look back on this as a time you should’ve bought. Think back a year: Gold finished out 2010 at $1380 per ounce, today gold finished around 1550 corresponding to just shy of 12%. I’ll take that. Remember that no investment ever goes up in a straight line.
Gold and silver remain as sound an investment in the current macroeconomic climate as ever. If you want to trade volatility in the market, go for it. If you want the longer-term gains, just be patient.

Of course, there’s always the chance that 2012 will turn out to be a drab, boring walk in the park; pleasant and uneventful; balanced and controlled growth; no chaos, no calamity, no craziness.

New claims for jobless benefits rose by 15,000 to 381,000 in the week ending December 24, it was the fourth straight week that the figure remained below the key 400,000 level.
The number of Americans signing contracts to buy existing homes increased in November to the highest level in 19 months.
And here we have the talking points moving into the new year: stronger prospects for U.S. economic growth (not really stronger growth, but stronger prospects for growth), more confirmation that we are in a sustainable albeit modest recovery (I suppose it could be worse)  We still have resilience in the face of setbacks (we’re not dead yet). The economy may actually decline in 2012, but anything short of a catastrophic crash will be labeled as modest improvement – on the road to recovery.

World markets may be riddled with uncertainty, but billionaire investor Jim Rogers anticipates gains in one sector for years to come. “If I were buying anything I’d be buying agricultural commodities,” he says. “Going forward we’re going to have huge shortages of everything – including farmers – I think ag will be a great place for the next 10-20 years,” he says. … “I’m short emerging markets, short American technology, short European stocks – I don’t see much reason to own equities,” he says. …If his thesis doesn’t hold and the economies of the world improve, “I’ll make money in commodities because (increased demand will generate) shortages,” he says. “But if the world doesn’t get better, then governments print money and the way to protect against that is to own real assets.”
Top 10 most shoplifted items of the holiday season in full. Merchants, you have been warned.
1. Filet Mignon
2. Jameson whisky
3. Electric tools
4. iPhone4
5. Gillette Mach 4 Razor blades
6. AXE products
7. Polo Ralph Lauren clothing
8. Let's Rock Elmo
9. Chanel No. 5
10. Nike sneakers

The tiny South Pacific nation of Samoa and its neighbor Tokelau will jump forward in time on Thursday, crossing westward over the international date line to align themselves with their other 21st century trading partners throughout the region. At the stroke of midnight on Dec. 29, time in Samoa and Tokelau will leap forward to Dec. 31 — New Year’s Eve. For Samoa’s 186,000 citizens, and the 1,500 in Tokelau, Friday, Dec. 30, 2011, will simply cease to exist. … Under a government decree, all those scheduled to work on the nonexistent Friday will be given full pay for the missed day of labor.
I think this might be proof that the world is what we make of it. And if you’re listening in Samoa – Happy New Year.

Picture of the day

SOPA is a bill currently pasBillboardsing through the bowels of Congress (H.R. 3261) introduced by Lamar Smith (R-TX) that would expand the role of law enforcement in protecting the rights of copyright holders. On the surface, that doesn't sound like a terrible thing, but when you dig a little deeper, the problem becomes clear.
SOPA would empower people who own copyrights -- film companies, record labels, television networks, in particular -- to not only go after people who individually steal their content, but to go after anyone who aids them. In this case, that includes the hosting companies that unwittingly host the content, internet service providers (Comcast, AT&T, etc) who unknowingly provide access, search engines like Google for linking to them, advertising services for running ads on their sites and online banking services like PayPal for allowing them to do business through them.
If they cooperate, however, they get immunity.
In essence, it turns the internet into a police state where every company is constantly searching for potential legal issues. Not only is it inefficient, but it creates the very real probability that things that aren't illegal will be shut down simply to protect the overseers from liability.
Now, what is GoDaddy?
GoDaddy is a domain name registrar. Domain names like cannot be purchased. All domain names are public property, but they can be essentially leased on a yearly basis. Registrars like GoDaddy, Network Solutions, and others allow individuals and companies to lease domain names through them.
Without registrars, web surfers would have to memorize number combinations called IP addresses to find sites. Imagine trying to remember 12.333.44.179 instead of
And why are they involved with SOPA?
GoDaddy set itself apart as one of the very few online services to show support for SOPA. Most of the major online players -- Google, Ebay, AOL, Twitter, Facebook -- are in opposition, as are thousands upon thousands of nerds and they are the last ones GoDaddy wanted to piss off.
When web users heard of GoDaddy's stance, they immediately began transferring domains from GoDaddy to other registrars. At last count, more than 70,000 customers had moved their domains, costing GoDaddy a serious chunk of change when you consider the average domain owner spends at least $10 per year on a domain and many of them have multiple domain names under a single account. Do the math.
GoDaddy reversed itself and withdrew its support this week, but geeks weren't buying it and continued the mass exodus. As Zed in Men in Black said, "It's like the last one out gets stuck with the check."

What does this mean to you?
If you don't own domain names, it probably means a little less to you, but as someone who visits the internet, you need to pay attention. This law is being pushed through Congress by monied lobbyists who represent some of the biggest names in the entertainment industry as a way of propping up flagging sales. Yes, their losses are, at least in the case of the music industry, largely due to piracy, but forcing the very companies that provide unfettered access to the web to act as its moral and ethical guardians would force them to put the kind of clamps on it none of us want.
Imagine if every blog that occasionally used photos it found from a Google search -- fyi, it happens a lot -- was shut down simply out of fear they might be in violation of federal law. The chilling effect could be incalculable.
No one is clear on what the outcome will be at this point. The bill is still bouncing around Washington and could go either way. But, nerd or not, everyone has a vested interest in both protecting legitimate copyrights as well as keeping the internet open and free from restriction. SOPA is not the answer.

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