Euro bond spreads hit record as panic grips markets

[FRED]

Euro bond spreads hit record as panic grips markets
March 5, 2008 (Ambrose Evans-Pritchard - Telegraph UK)

Investors sold Italian and Greek debt yesterday in signs of near panic liquidation, driving bond spreads to the highest level since creation of the single currency.

The yields on Italian 10-year government bonds reached 52 basis points above German Bunds, approaching levels that risk setting off a self-reinforcing spiral of investor flight.

Spreads on Greek bonds also jumped to 52.

The wild moves on the euro-zone bond markets came as gold plummeted by $29 an ounce to $957 on automatic stop losses and forced selling by funds. Crude oil futures tumbled almost $3 a barrel in New York.

AntiSpin: Some readers wondered why we suggested cash instead of gold in a recent interview on CNBC. The reasons will become increasingly obvious.

First we assume our readers already own, as Dr. Peter Warburton put it a "rump of gold" and that the bulk of money is in other assets which are also dollar hedges. We suggest that rather than think of gold as purely an anti-inflation hedge think of it as a leveraged anti-inflation hedge. As long as the leverage is there, gold will do well inflation or not. With inflation and leverage, gold does well. But if the leverage retreats even in the presence of inflation gold will decline along with everything else leveraged.

That is what we were reminded of again today watching gold and silver just before noon EST.

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[touchring]

Re: Euro bond spreads hit record as panic grips markets

But if the leverage retreats even in the presence of inflation gold will decline along with everything else leveraged.

Wow, any comments on gold bugs here?

[Guest]

Re: Euro bond spreads hit record as panic grips markets

Here's a comment from Marc Faber from yesterday, or the day before. It references the same bond problems in the southern tier Meditteranean countries as does iTulip here.

While iTulip regards thess Euroland problems as portending darkening clouds and growing risk for inflation hedges (shrinking "leverage" of gold?), Faber reminds us the Euroland problems portend serious strains within the Euro, which weakens popularity of the one currency considered the credible anti-dollar. Faber in other words suggests this is gold-bullish. Meantime a dollar upswing would not win my belief in it's longevity for very long.

What else has changed overnight?

Not sure I understand iTulip's sudden notes of caution Re: the metals. Yes they are due for perhaps a nasty correction - but what else fundamental could have changed suddenly? Might this not be just as well termed "volatility"? That would be entirely typical of the metals.

__________

QUOTE :

With Bernanke at the Fed and Paulson at the Treasury, and a Euro that could face some problems (a breakup, some believe) because of badly deteriorating economic conditions in Italy, Spain, Portugal, and Greece — precious metals are likely to outperform financial assets for some years to come, resulting in the persistent decline of the Dow/gold ratio.

As Michael Berry remarked, “Gold is no friend to the world’s central bankers. The printing press is their friend.” In fact, I would be very surprised if the Dow Jones Industrials/Gold Ratio didn’t decline to between 5 and 10 within the next three years. Therefore, I should like to reiterate my recommendation to accumulate gold.

Other commodities that could come to life this year are sugar, cotton, natural gas, and palladium. Moreover, uranium is unlikely to disappoint the longs. In general, some special situations aside, I am not positive on industrial commodities in a slow growth or recession type of environment.

Among commodities and currencies, my preferred asset remains physical gold held outside the U.S., for the simple reason that — depression or inflation — it is very likely to outperform financial assets. For gold, I believe the best is yet to come!

Best regards,
Marc Faber

[magicvent]

Re: Euro bond spreads hit record as panic grips markets

I don't recall such warnings about gold being posted in your iTulip articles recently. If I am wrong, please indicate when and where such information was provided.
Thank you

[magicvent]

Re: Euro bond spreads hit record as panic grips markets

Have you made any change in your gold holdings or your eventual sell price of approximately $2000?

[grapejelly]

Re: Euro bond spreads hit record as panic grips markets

This is so predictable.

1. The Euro is very overvalued versus the US$

2. The Euro/US$ and gold has tracked closely.

3. It will continue to track for awhile.

4. As the Euro falls vs. the US$, the price of gold corrects.

5. The Yen and Swissie are still rising vs. the US$, and the Euro is starting to fall

We can expect a multi month rally of the US$ vs. the Euro, and a correction in PM prices. Why? Psychology just has gotten too bearish on the US$ and too bullish on the Euro.

I don't think this is anything but a speedbump along the way. It is typical of what we have seen over the years that gold has been shooting up. Nothing keeps going up forever.

[WDCRob]

Re: Euro bond spreads hit record as panic grips markets

I don't recall such warnings about gold being posted in your iTulip articles recently. If I am wrong, please indicate when and where such information was provided. Thank you

Have you made any change in your gold holdings or your eventual sell price of approximately $2000?

Great questions.

[FRED]

Re: Euro bond spreads hit record as panic grips markets

We remain long gold as we have since August 2001. We note the following price action.

Since 2001, the gold price has increased in four distinct growth trends.

A. 2001 - 2006: Post-bubble gradual currency depreciation and inflation trade
B. H1 2006: Rapid speculative trade
C. H2 2006 - 2007: Resumption of gradual currency depreciation and inflation trade
D. 2007 - Present: New rapid speculative trade

Within the current rapid speculative trade, we are watching for short term price volatility much as occurred at the end of the previous similar period C (H1 2006): a 20% correction from $720 to $580. We are also within the long term for volatility that will portend the end of the currency depreciation and inflation trade that began in 2001.

The reason for our post is the following observation of coordinated gold and silver price action. Note that both gold and silver spot prices declined at the same time yesterday just before noon Eastern time and partially recovered in a similarly steep price change after 8AM Eastern time.

In view of the charts above it is reasonable to ask: what trade forces are driving these kinds of simultaneous short term price changes in two precious metals markets, for silver and for gold? Platinum, by the way, remained unchanged.

We are certain that it is not the same long term function that drove prices gradually in periods A and C noted above. We believe these short term price movements are being driven by funds.

Thus our note: within the long gold and silver trade are players the can create price movements that at times are counter to the long term trend and that at other times exaggerate the long term trend. It is our position that the pullbacks created by the short term counter trends are buying opportunities and for the traders among us the peaks of exaggerated short term price movements are selling opportunities. Perhaps more importantly, it is critical to distinguish between the kind of price volatility that funds can create with leverage versus the kind of price volatility we will see at the end of the long term PM inflation trade in place since 2001.

We do not foresee in light of ongoing liquidity problems in global bond markets, combined with slowing economic growth and rising inflation around the world, how governments will be able to make bonds more attractive than hard assets by raising yields above the rate of inflation to draw money away as occurred in the early 1980s during the previous cycle.

As long as future real interest rate expectations remain negative, the long PMs position that we took in 2001 remains in place.

[Andreuccio]

Re: Euro bond spreads hit record as panic grips markets

Thanks for the post, Fred. Very clarifying.

[Guest]

Re: Euro bond spreads hit record as panic grips markets

Fred -

Can it be fiat inflation alone has the power to goose the copper market as this chart indicates? Seems if we were truly seeing a significant slowing of global growth the copper price action would be considerably more muted. I keep reading about slowing global growth everywhere.

"Dr. Copper" is not playing along. Currently breaking out of a massive consolidation stretching all the way back to the spring of 2006? Methinks all the stories circulating and the percieved cautious wisdom about a weakening in global demand for industrial materials have some 'splainin' to do.

[Jim Nickerson]

Re: Euro bond spreads hit record as panic grips markets

Fred -

Can it be fiat inflation alone has the power to goose the copper market as this chart indicates? Seems if we were truly seeing a significant slowing of global growth the copper price action would be considerably more muted. I keep reading about slowing global growth everywhere.

"Dr. Copper" is not playing along. Currently breaking out of a massive consolidation stretching all the way back to the spring of 2006? Methinks all the stories circulating and the percieved cautious wisdom about a weakening in global demand for industrial materials have some 'splainin' to do.

Your chart is five days old. At least for the moment copper has reversed, and for the moment that would not seem to be because the dollar has strengthened. As I write the dollar index is at new lows.

copper chart, weekly through 3/12/08
http://stockcharts.com/h-sc/ui?s=$CO...d=p46028579721

US$ index chart, tonight there is yet 0.23 more of a drop. Edit: make that -0.395
http://stockcharts.com/h-sc/ui?s=$US...40&a=132940973

Country: Index	OFF ~ HIGHS
DJ Asia-Pacific	-17.89%
DJ Wilshire Asia-Pacific	-19.02%
Australia: All Ordinaries*	-23.64%
Australia: S&P/ASX*	-24.60%
China: DJ CBN China 600*	-24.62%
China: DJ Shanghai*	-23.56%
Hong Kong: Hang Seng*	-28.29%
India: Bombay Sensex*	-22.93%
Indonesia: JSX Index*	-11.23%
Japan: Nikkei Average*	-31.15%
Japan: Nikkei 300*	-31.15%
Japan: Topix Index*	-32.72%
Malaysia: DJ Malaysia*	-20.83%
Pakistan: KSE 100*	0.00%
Philippines: PSE Index*	-24.31%
S. Korea: Seoul Composite*	-20.75%
Singapore: DJ Singapore*	-25.06%
Singapore: DJ Wilshire Singapore*	-24.79%
Sri Lanka: Colombo All Share*	-14.57%
Taiwan: Weighted*	-15.03%
Thailand: SET*	-9.68%
AVG	-21.46%
Country: Index
DJ Stoxx 50	-22.85%
DJ Stoxx 600	-22.19%
DJ Euro Stoxx	-21.28%
DJ Euro Stoxx 50	-20.23%
Austria: ATX Index	-24.63%
Belgium: Bel-20	-21.29%
Czech Republic: Prague*	-21.36%
Greece: ASE General*	-24.17%
Finland: OMX Helsinki	-21.49%
France: Paris CAC 40	-23.85%
Germany: DAX	-19.04%
Ireland: Irish Overall	-37.28%
Italy: S&P/MIB	-26.70%
Netherlands: Amsterdam AEX	-21.73%
Norway: All Share*	-20.60%
Portugal: PSI 20	-23.55%
Russia: DJ Russia Titans	-15.38%
Spain: IBEX 35	-17.65%
Sweden: SX All Share	-26.84%
Switzerland: Zurich Swiss Market	-24.12%
Turkey: Istanbul National 100*	-24.95%
UK: FTSE 100	-14.48%
UK: FTSE 250	-18.67%
UK: FTSE AIM All-Share	-12.82%
AVG	-22.73%
Country: Index
DJ Americas Index	-15.13%
DJ Wilshire Americas	-34.17%
Argentina: Merval	-9.24%
Brazil: Bovespa	-5.61%
Canada: S&P/TSX*	-9.21%
Chile: Santiago IPSA	-18.61%
Mexico: I.P.C. All Share	-10.82%
Venezuela: Caracas General	-31.88%
AVG	-14.68%
DJ Industrials*	-15.2%
Nasdaq Composite*	-21.6%
S&P 500*	-17.0%
DJ Wilshire 5000*	-17.3%
Russell 2000*	-22.1%
AVG	-18.63%

Above shows the ~ percentage that world markets are off their highs. On average Asia and Europe are in bear markets, which suggests to me that copper and other building materials demand may not be exploding to the upside just now. The percentages in boxes went into computation of the averages (AVG).

I think a lot of commodity prices are up because the bonar is so beaten down.

[Guest]

Re: Euro bond spreads hit record as panic grips markets

Jim -

If I indulged the extrapolating of a future market employing only the past week's data, I would be taking the same approach apparently being taken this week by Mr. Ackerman, (although he is in so many respects an excellent technician and analyst) - he actually surmises this past week's flat gold price is maybe a "clear harbinger" of it's imminent weakening in a deflationary vortex.

This invents some near term future for this metal (a mega-trend-change) which is quixotically at variance with it's immediate past, and that appears quixotic as a forecast because gold has for years been soaring, and shows no signs of the parabolic numbers typical of a secular blow-off.

Reading gold's price and presuming to derive a far sighted forecast based purely on last week's flat price action, seems a puzzling forecasting to me. Similarly, the "up close weekly read" of the price action in copper, which you interpret from one or two week's data as foretelling a multi-year trend change produces something which may risk being "market noise", leading to constant shifting of views as to where things are headed.

The chart you express skepticism about above could be a clear red flag to you even on a merely technical basis, (you seem partial to a lot of technical analysis - advance decline lines, stochastics, overbought / oversold reasdings, market breadth, contrarian reads, etc). When you see a commodity price trajectory execute a one year or eighteen month contracting triangle as the above copper chart, with an upward bias, and then you see a clear breakout confirmed over several weeks out of that 18 month consolidation triangle, it suggests that despite turbulence in that commodities' price, the trend longer term is UP. Giving equal weight instead to a single week's data to discern a potential alternate trend is merely confounding.

This same kind of elementary chart interpretation was presented to us by Clive Maund on silver, when it nudged out of it's contracting consolidation triangle last fall - that consolidation triangle had lasted eighteen months. Maund points out, that breakouts from such long consolidations are (according to chartists anyway) highly reliable signals of future price. You are the chart guy, not me. You don't recognize this axiom (long consolidation triangle breakouts have an elevated probability of predicting the future direction when they break, up or down)?

If one is inclined to perceive as our market reality an unending sequence of frequent presumedly "major" market trend changes, fluctuating at a rate of one ot two every year (or more), one tends to limit all one's positions to small, extremely cautious allocations, hedged by permanent uncertainty with constant reshuffling, in a search for "safety". The positions become so partial and highly diversified as to be too diluted on the strongest bets, and quite cumbersome to close out altogether when the real "sell everything" or "buy everything" signals come along. One gets caught up in complex "pruning" and "reallocating" exercises, held hostage to the complexity of one's positions.

Believing that one-week-old data can provide clear suggestions of a trend change is a great starting point for overtrading one's personal account. I would never trust myself with the frenetic trading you do with your investments. And I'm bemused by those who are constantly rummaging around looking for "new trends" on a weekly or monthly basis. The big trends change on the order of once every few years.

That's how I read all your posts in "how is one iTuliper invested". Way too much trading. When I retire I will try to keep my hobbies completely separate from my investments. If my invesdtments start to turn into a hobby I'll find a money manager I trust, pick out the strongest themes for the next five years, and tell him to "keep it real simple".

[Guest]

Re: Euro bond spreads hit record as panic grips markets

March 13, 2008


COPPER was buoyed overnight by tight fundamentals and falling stocks, while tin touched a record high, underpinned by supply problems in Indonesia and Congo.

Copper, widely used in the power and construction industries, closed at $US8400 a tonne, up $US125.

Stocks of copper at LME warehouses have fallen by about 35 per cent since the beginning of this year and at just under 129,000, they account for less than three days consumption.

Just how tight the market is can be illustrated by the backwardation or premium for cash material - more than $US90 a tonne - over the three month contract. That compares with a discount, or contango, in December.

“Backwardation is a sure sign of tight supply/demand fundamentals of a commodity,” said Robin Bhar, analyst at UBS.

“None more so than in copper, where concerns over lower demand have been superseded by fears of supply disruptions and even lower production.

Analysts cite the example of Chile's Codelco, the world's biggest copper miner, which last week said output in 2007 fell 5.5 per cent to 1.583 million tonnes.

“We had estimated earlier that the global copper market would register a surplus of 300,000 tonnes this year but this is now looking too optimistic in light of the production losses that have already emerged,” Mr Bhar said.

Analysts believe strong copper market fundamentals will eventually propel prices back towards the record high of $US8820 a tonne seen last week.

“We are seeing strong demand growth from emerging markets, in spite of the poor outlook in the United States,” said Daniel Hynes, analyst at Merrill Lynch.

______

Reuters.

http://www.theaustralian.news.com.au...-20142,00.html

[Jim Nickerson]

Re: Euro bond spreads hit record as panic grips markets

That's how I read all your posts in "how is one iTuliper invested". Way too much trading. When I retire I will try to keep my hobbies completely separate from my investments. If my invesdtments start to turn into a hobby I'll find a money manager I trust, pick out the strongest themes for the next five years, and tell him to "keep it real simple".

Why don't you get back to us on this one when you are in your 17th year of retirement.

While you're tooling around why not stop by Richard Russell's place and tell him to get a life.

[Guest]

Re: Euro bond spreads hit record as panic grips markets

Jim -

The difference between Richard Russel and I is that he is a professional, and a very good one at that. Not an insignificant distinction when it comes to managing money.