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 Gold : a tale

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Sauros

Sauros


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PostSubject: Gold : a tale   Gold : a tale Icon_minitimeMon Oct 26, 2009 3:25 pm

I just posted on the blog a post about the story I heard about Gold.
http://blog.thelordoftrading.com/2009/10/long-time-weve-not-spoken-about-gold.html

It could have profound implications on the commos, the USD and on the whole Economy.
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Snapman

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PostSubject: Re: Gold : a tale   Gold : a tale Icon_minitimeMon Oct 26, 2009 4:04 pm

"and this kind of situation shows why derivatives are weapons of
financial destruction," ... haha nice quote. So you are saying the
deriviatives markets is the next bubble. And you site possible demand
bubbles coming from emerging asia? And you think that supply will not
be able to meet depend and thus gold will be in the 2000+ range. ... so
what are the implications for the USD and equties?

and who are the ones who are creating this bubble? central banks? bankers? asian demanders? or at least most specifically who do you think will be the biggest contributor to the bubble?
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Sauros

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PostSubject: Re: Gold : a tale   Gold : a tale Icon_minitimeMon Oct 26, 2009 10:07 pm

First, to me derivatives are definitely what will lead us to the financial armageddon and the actual bubble that has not burst yet, cf this post where i discuss this: http://blog.thelordoftrading.com/2009/06/dealing-with-16-digit-dollar-exposure.html

The Bubble is created and fed by the OTC derivatives dealers and makers: mostly the US banks. That's similar to what happened with Credit Derivatives and CDOs: that's a volume business, the more you sell, the more you make money, so you sell what you don't have and what doesn't exist: that's pure leverage. Here the story shows that JP and DB sold gold no one has and this kind of methods works when all the participants play the "game". But China, the main player in several metals and commodities markets, announced in August that they wouldn't play anymore that and may default on their OTC agreements. A default on their losses would be the direct loss of their OTC counterparts : mostly the US banks

It looks like China is to create artificially a drought of the gold, silver and the commodities markets : roughly they are to massively exchange USD (they have plenty of them, purchased to maintain their currency weak) against the physical commodities. The implications would be obvious : Gold, silver and commodities will skyrocket while the USD will sank and become worthless.
Doing so:
- they will get rid of their USD as it seems the USD is doomed and its weakness is supported by the US gov itself (notably to inflate its debt out)
- they will be the main owner of commodities (they are already the main producer of most of them)
- they will get rid of the derivatives exposure and will avoid the financial armageddon when it comes letting it for the West...

I've seen less smart moves...
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Snapman

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PostSubject: Re: Gold : a tale   Gold : a tale Icon_minitimeTue Oct 27, 2009 3:18 am

Your Idea is kinda inline with a thesis Roubini was talking about on squawk box( "IF" his V shape recovery forecast is trumped by a reversion to poor economic fundamentals). Wait wait, before you rag on me saying Why the heck was Snapman watching CNBC?, in all fairness this was a video linked on the right winger blog "the big picture," but aside from this point, Roubini was talking about people using the dollar for carry trade investments currently (though not necessary the currency realm ... yet). As some fund managers are saying (check out research in the crypt - good stuff), the dollar is now favored as a funding currency. More over, Even without a financial Armageddon the possibility of dollar depreciation and deflation still remains high (according to roubini). As I have said before, we know rates are not gonna budge with CPI and PPI numbers so low along with sub par housing data... A derivative financial disaster would just seal the deal.
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Sauros

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PostSubject: Re: Gold : a tale   Gold : a tale Icon_minitimeTue Oct 27, 2009 9:00 am

Jim Sinclair's thoughts on China invoking a Stop Loss on OTC derivatives
http://jsmineset.com/2009/08/31/china-invokes-a-stop-loss-on-otc-derivatives/

A few bits :
The Chinese are doing exactly the right thing and exactly what the West should have done years ago when long term capital flopped.
Now the rest of the BRIC nations will follow suit.
China’s actions here are another reason why China is headed for the largest economy on the planet.
While the West enriches the creators of this disaster, China herein tells them, to go straight to hell, and that they will not get their money to enrich themselves more. China has invoked a "Stop Loss."
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Sauros

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PostSubject: Re: Gold : a tale   Gold : a tale Icon_minitimeTue Oct 27, 2009 10:55 pm

Snapman wrote:
Your Idea is kinda inline with a thesis Roubini was talking about on squawk box( "IF" his V shape recovery forecast is trumped by a reversion to poor economic fundamentals). Wait wait, before you rag on me saying Why the heck was Snapman watching CNBC?, in all fairness this was a video linked on the right winger blog "the big picture," but aside from this point, Roubini was talking about people using the dollar for carry trade investments currently (though not necessary the currency realm ... yet). As some fund managers are saying (check out research in the crypt - good stuff), the dollar is now favored as a funding currency. More over, Even without a financial Armageddon the possibility of dollar depreciation and deflation still remains high (according to roubini). As I have said before, we know rates are not gonna budge with CPI and PPI numbers so low along with sub par housing data... A derivative financial disaster would just seal the deal.

Why the heck was Snapman watching CNBC ??? Gold : a tale Icon_santa

As I was checking about what Roubini said about the carry trade, I found a good one about him: he was compared for his prediction of the crisis and as he missed the current rally to a broken clock that gives the correct time twice a day Smile Now that's true i'm not fond of Roubini, I prefer Krugman or Taleb even if the later became famous after the crisis (with his "black swan").

Now to be clear, I fully agree that a dollar depreciation can happen without the derivatives Armageddon
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Batman

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PostSubject: Re: Gold : a tale   Gold : a tale Icon_minitimeWed Oct 28, 2009 9:22 pm

Scary Stuff. I'd like to know why the plan to regulate these OTC products has fallen through. If I'm not mistaken Citadel and CME were set to launch the largest clearing house of these products but backed out due to lack of support in the financial community. It bothers me that Wall street was on the brink of collapse and fails to reform.
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Snapman

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PostSubject: Re: Gold : a tale   Gold : a tale Icon_minitimeThu Oct 29, 2009 2:54 am

Batman wrote:
Scary Stuff. I'd like to know why the plan to regulate these OTC products has fallen through. If I'm not mistaken Citadel and CME were set to launch the largest clearing house of these products but backed out due to lack of support in the financial community. It bothers me that Wall street was on the brink of collapse and fails to reform.

history repeats its self, same sh*t different smell.... hmm but you do bring up a good point. back in 2007 I was always raggin on how a fundmental change was necessary to bring us out of the recession. Perhaps i was wrong....
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Sauros

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PostSubject: Re: Gold : a tale   Gold : a tale Icon_minitimeThu Oct 29, 2009 11:21 pm

Batman wrote:
Scary Stuff. I'd like to know why the plan to regulate these OTC products has fallen through. If I'm not mistaken Citadel and CME were set to launch the largest clearing house of these products but backed out due to lack of support in the financial community. It bothers me that Wall street was on the brink of collapse and fails to reform.

To me the point here is not about the need of a clearing house that would net some counterparty risk on OTC instruments, that was a real thing with CDS.

It's more about "synthetic" exposures that derivatives grant by replicating a real asset, for instance a future contract. Go long a future on let's say oil and you'll have the same payoff as if you own physically crude oil (in your bathtube). The thing is your broker sells you something he hasn't got in order to receive a fee for the transaction, what gives him an incentive to sell as much as he can and giving you leverage. Globally extending this mechanism broadly, the market trades, buys and sells, much more assets than what really exists.

The US markets are too much dependent of those derivatives (and make so much money trading them) to change a thing and reform deeply and I'm not sure you or me, as speculators or hedgers of a real exposure, would be so happy if the derivatives or ETF stop being use tomorrow... See why it's hard to reform?

Back to my take on China's announcement end of august once again, as I failed to be clear : China is naturally long of commodities, it used to hedge the price of its commodities by shorting futures and selling at forward prices. With the recent rise of the commodities, those contracts are probably big losers by now. My understanding when they announced that they will default on their losses evoking a "stop loss" is they won't deliver the commodities they owe, maybe paying the losses with USD instead: so they keep their commodities, get rid of dollars, get rid of futures contracts.
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