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Thursday, May 27, 2010

Thursday Brainstorming - part 1

1. Markets are in screw them all mode gaping up and down around a crucial area but on top of that we also had beyond the regular manipulators a special event as markets sold off on news by FT that China would consider exiting parts of the EUR holdings they accumulated around the highs of the EUR which was denied today and triggered again a strong reversal even before markets open. The timing is very interesting ( a friend pointed that out) as it happens exactly after the Clinton,Geithner, Bernanke visit to China pushing for higher Yuan. The question is did the Chinese show America that they have some bargaining chips and deliberately created this 24h event?
After the steep losses this month we also should see some upside window dressing with a long weekend ahead at months end its an interesting timing event from many angles plus to give one sample I wondered why the june 47 qqqq calls were by far the most active series trading but today one thing is crisp clear who ever bought them new this china denial would come as they will double which is the easy money the insiders make.
After all it produced the final dip below 1.22 for the EUR once again and we are now very likely up for the 1.30 target.


China Denies Review of Euro-Zone Bond Holdings

China remains committed to its long-standing goal of diversifying its foreign exchange reserves, a government official said on Thursday, helping to soothe markets unnerved by a report that the country was reviewing its euro-zone bond holdings.

Flag of the  People's Republic of China
Karin Slade | The Image Bank | Getty Images
Flag of the People's Republic of China

The official, who is familiar with how the government manages its $2.4 trillion of reserves, told Reuters that the direction of diversification "will not change", when asked about a report that the State Administration of Foreign Exchange (SAFE) was concerned about its exposure to debt troubles in Europe.

SAFE declined to comment.

Separately, a banker who has worked with China's reserve managers said they would exercise more caution about buying the euro in the short term, but that they had few other outlets for investing their stockpile of cash -- the world's largest.

2. The Greece central bank screws their own people as it sells Gold around 1700 price tag a whopping 500 above market value but on the other hand even people in Canada seem to pay up to 20% premium for the Eric Sprott Gold fund - which has all the symptoms of a bubble I usually would say. Why would anyone buy at such premium when via internet or a short trip you could buy it cheaper. If one buys minimum quantities the expenses of travel would not pay off but I assume the buyers are rather affluent and in case of Eric Sprott it does not make sense.
Even GLD if bought in a critical mass of 10 mio (if I collect correctly) can urge physical delivery which obviously does not fit most retailers size - but before paying 20 % premium I rather organize a trip because at the end you do not get physical delivery from the Sprott fund either for your share. Fiat money will loose its value thats true but last time that happened FDR screwed all Americans and global Gold owners and set the Gold price at fixed 35 Dollar down from over 200. With all major banks like JP Morgan, Morgan Stanley, HSBC, Barclays holding huge shorts on Gold and Silver they must rely that such a thing will happen again or they are bust. Imagine governments return to Goldstandard at fixed price of 100 lets say - those banks have made the short -trade of the century.


Greek Scramble For Physical Brings Gold Price To $1,700 Per Ounce

And there are those who wonder how Sprott's PHYS could have traded at "ludicrous" NAV premium of over 20%. reports that prices at which the Greek Central Bank is selling one ounce gold equivalents are as high as $1,700 (40% over spot), and prices on the black markets are even higher. The punchline, as Athens slowly returns to a forced gold standard: " A popular spot for street vendors to sell their coins is near the Athens Stock Exchange. There the traders wait for citizens to bring payments received from unloading their paper assets like stocks and bonds." That's good - downtown Manhattan close to the NYSE has some free space for gold vendors to set up shop as well, they just need to push some of the frontrunning/collocation boxes off to the side. And in other rhetorical ruminations, is it safe to say that the last days of the fiat experiment are among us now that people themselves are bypassing the government and enforcing their own gold standard?

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