Investors expecting the worst

Maybe you remember news stories like this from last December, when it seemed the entire world's economic system was about to break down.

Dec. 9 (Bloomberg) -- Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression.

Negative yields essentially mean that you are paying the government to loan it money. It's a flight to safety at any cost. Last December was the first time it had happened since the Great Depression.

Gold, the dollar and China

So what it's true? A Chinese official trashed our currency, so the dollar is down and gold reaches another high.

"The continuous depreciation in the dollar, and the U.S. government's indication that, in order to resume growth and maintain public confidence, it basically won't raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation," Liu Mingkang, chairman of the China Banking Regulatory Commission, said Sunday in Beijing at the International Finance Forum, according to news reports.

Meanwhile Gold is at another high:

This is a different type of gold rally, with support coming from both sides of the market -- investment [and] fundamental," said Darin Newsom, a senior analyst at Telvent DTN.

IMF validates Roubini on Dollar used for carry trade

Bloomberg reports IMF Says Overvalued Dollar Used for ‘Carry Trades’ :

The International Monetary Fund said traders are probably using the dollar to fund “carry trades” across the world and the currency may still be overvalued even after its slide this year.

“There are indications that the U.S. dollar is now serving as the funding currency for carry trades,” the IMF said in a report published today. “These trades may be contributing to upward pressure on the euro and some emerging economy currencies.” While the dollar “has moved closer to medium-run equilibrium,” it is still “on the strong side.”

The IMF is also warning on the Chinese currency being significantly undervalued. We've covered China's currency manipulation many times and noted almost all of the U.S. trade deficit with China can be attributed to Chinese currency manipulation.

Gold is going mainstream

If you said back in 2001 that a major insurance company would buy hundreds of millions of dollars worth of gold bullion to "hedge against asset declines", you would have been laughed at. The idea was inconceivable.
Yet today, there was this news article.

(Bloomberg) -- Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer by 2008 sales, has bought gold for the first time the company’s 152-year history to hedge against further asset declines.

“Gold just seems to make sense; it’s a store of value,” Chief Executive Officer Edward Zore said in an interview following his comments at a conference hosted by Standard & Poor’s in Brooklyn. “In the Depression, gold did very, very well.”

The "H" word for the U.S.? - Hyperinflation

When I first read about the Federal Reserve printing money and lowering interest rates to an effective -5% interest rate, images of Argentina and the Weimar Republic flooded my head. Rest assured I believed my fears were just that.

Now we have investor Mark Faber saying hyperinflation is guaranteed. Happen here? Well, there are a lot of things, which are stuck on stupid happening in the United States, but with the U.S. as a reserve currency and the number one economy in the world?

The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.

Blackmailers, Banking and Who's Holding the Money

Deep Throat: "No, I have to do this my way. You tell me what you know, and I'll confirm. I'll keep you in the right direction if I can, but that's all. Just... follow the money".

The trail of money will usually confirm where a crime has been, or is about to be, committed.

Take for instance former Illinois Governor Rod Blagojevich when he stated

the state will suspend business with Bank of America Corp. until the lender restores credit to the shuttered Republic Windows & Doors company in Chicago where workers are staging a sit-in.

Having crossed BofA the next day his scandal broke (midtowng posted a very good article on this)

Who is the bankers bank? The Federal Reserve. And who is the latest person to cross the bankers bank? Ken Lewis.

Frightened investors turning to gold

It's become a matter of policy bordering on irrationality for professional traders and investors to be hostile to gold. Yet when times get unpredictable and scary, people still turn to gold. This trend change deserves to be acknowledged.

Inflows into gold ETFs continued to grow throughout the quarter, with investors buying a record 469 tonnes of gold, dwarfing the previous quarterly record of 145 tonnes, set in the third quarter of last year. This took the total amount of gold in ETFs to 1,658 tonnes, worth US$48.6 billion, the World Gold Council said.

What's this guy Smokin'?

Sometimes I am amazed how status quo blowhards can get published and really good writing like midtowng, New Deal, Robert Oak can get overlooked.

Today was one of the status quo days as David Hirst asked the question What's blowing the golden bubble?. Following is this assinine statement:

Gold became an unsatisfactory medium of exchange as the world entered the modern age. Cash, banknotes and cheques were far superior to gold, especially when backed by gold.

It is in the US where the great gold debate is centred.

America is a gold-loving nation. Gold could well be added to the "three Gs" that kept the Republicans in power in recent times: God, gays and guns.

America is a gold loving nation? Is he serious? It is barely on the radar of Joe Sixpack. I will save you the agony of reading the entire article but some of my choice hilites are:

Gold, Safe Haven and Nationalization

It seems Wall Street doesn't like the idea of nationalizing the banks

Fears of a nationalisation of Citigroup and Bank of America shook global markets on Friday, sending shares in the troubled banks tumbling and dragging down the entire financial sector.

It emerged that the US government is to begin its planned “stress tests” of banks’ financial health, which Wall Street executives told the Financial Times could start next week.

Gold prices broke the $1,000 a troy ounce barrier, the highest level in 11 months, as investors shunned risky assets for the relative safety of bullion amid renewed fears about the health of the global financial system.

Commodities Like a Balloon After a Pin is Stuck in It

Balloon Pop with a Pin

Confidence is at rock bottom. No one wants to be long any commodity. - Jamie Craggy (source Bloomberg)

It appears that New Deal Democrat maybe right on possible deflationary recession.

Oil, Copper, Commodities in Freefall as Economic Woes Deepen:

Crude oil and copper led a drop in commodities, extending a record quarterly decline, on expectations an economic slump will sap demand for raw materials.