China Plays Currency Chess
Mainstream media has interpreted the recent announcement by China that it will allow their currency to float more against the dollar to be a positive signal for the global economy and beneficial for the US. This stream of political spin, that came from the White House and Congress, will prove to be as false as talk of a long term recovery last year.
Politicians are claiming that the move, which will lead to a higher Yuan, was made to appease American officials. They also claim that China wouldn't allow their currency to float higher if their leaders were concerned over a double dip recession. For this reason, the announcement was perceived to be a sign that China is bullish on the markets and economy.
Let there be no mistake; China will revalue their currency on their terms when the timing is most beneficial for China. A more likely scenario is that Chinese officials are anticipating the next phase of the recession and realize it is an opportune time to decouple their currency from the dollar. Despite common misinformation, a strong currency supports a strong economy. The dollars relative strength during the last century is a testament to this. The Chinese realize this and do not want to dragged down with the western economies as they drown in debt and currency debacles. China wasn't calling a bottom in the stock market, they were calling a top in the dollar.
Would it have made sense to revalue the Yuan against the dollar a couple of years ago when the dollar index was threatening to break below 70 and everyone was short the dollar? The near financial collapse launched the dollar higher to its current level near 90, and the Chinese Yuan went along the ride by default. Had the Chinese decoupled earlier their currency would have been trashed just as the Australian and Canadian dollars were.
The coming weakness in the global economy has already begun and will in the near term continue to increase demand for the dollar and treasuries. This will be an opportune, and possibly the last great time to exit the dollar. By decoupling when the dollar is near its peak, the Chinese currency will be launched at a moment of strength and might even give them the chance to sell some dollar based assets before the next round of quantitative easing begins.
Gold and Silver Meet Resistance
Conforming to the statistical odds, gold and silver have both met strong resistance levels. Gold has made several attempts at the 1260 level and been subsequently pushed back down to the 1230 area.
Silver has a much more developed band of resistance between 19 and 21 that stretches back to its 2008 highs. At this point the ceiling above silver seems impenetrable, however this 2 year band will fuel an explosive move when the level is finally pierced.
Both metals are facing strong head winds, that make their performance much more impressive when taken into consideration. Global liquidity is drying up rapidly, and equities are dragging everything lower as money managers sell assets across the board. Historically, the next 3 months are the weakest for precious metals, especially silver. The fact that both metals are threatening their long term resistance levels at such a weak period is a precursor to the next up leg that will likely begin in the fall. In the interim, the precious metals will likely correct low enough to frustrate the bulls wanting a higher price, and shallow enough to frustrate those hoping to get in at lower prices.
However, such frustrations with gold and silver are surely better than what general equities investors will endure.
TradePlacer.com Launches Real-Time Exchange for Collectibles
In an effort to increase liquidity for collectible assets, TradePlacer.com is pleased to announce the launching of its real-time auction marketplace for gold, silver, platinum, wine and other items. After over a year of development, the marketplace was built to leverage state of the art technology capable of handling large trading volumes, and is offering incentives for beta users.
Unlike traditional auctions, TradePlacer.com buyers and sellers are able to set their own prices and quantities. Users are able to resell items that they won previously back into the same auction before it expires. A trading order book lists all bid and ask prices and quantities for full transparency, and trades are matched in real-time by TradePlacer.com's proprietary trade matching engine. This enables users to trade real assets such as gold and silver bullion, and wine in real-time, much like they are trading a stock. While some users may choose to only buy items for delivery, other users may sell, or trade items for profits before an auction closes.
Initial items listed include gold and silver coins, junk silver, and other bullion. Users are also encouraged to suggest new items to be listed. It's completely free to sign up and place orders. If a user's price is matched, they become an auction winner. Users are allowed to cancel and change their orders at any time until they are matched. A small commission is only charged for successfully fulfilled trades.
For more information on how to trade gold, silver, platinum, wine and other collectibles please visit TradePlacer.com
If you are a business interested in listing your gold, silver, wine or other items on TradePlacer.com for free, please contact us at
info@tradeplacer.com
What's the Fed's next move
With the stock market up over 50% last year, talk of a V shaped recovery, green shoots, and other aberrations, most analysts expected the economy to resume growing as if 2008 was some sort of unpredictable outlier. With interest rates at 0, and massive government spending programs, the biggest concern for mainstream media was that the economy might grow too fast.
However, it seems evident that even the Federal Reserve doesn't believe in the green shoots theory anymore. Despite government intervention, economic indicators are rolling over, money supply measured by M3 is declining, and financial stress is increasing. Europe is now in an economic crises that could easily spread, and oil is filling the Gulf of Mexico. Risks of a shock to the financial system are everywhere.
Some analysts have been arguing that interest rates must rise to compensate bond holders, however the European crisis has been a gift to the dollar and treasuries so interest rates have remained low. A spike in interest rates appears unlikely in the near term.
If the current trajectory continues, there could be another sharp correction in equity markets globally but US assets may perform the best in comparison, especially treasuries. This could trigger another bout of financial asset deflation and panic. But what can the Fed do now that interest rates are at 0? Will Robert Prechter finally be right after so many years?
Unlikely.
The Fed will never be out of bullets as long as there is a fiat currency - for better or worse. The Fed would probably resume quantitative easing programs on an astronomic scale. And it might even work for a while.
Asset Allocation of Gold and Silver - What is the Right Allocation?
There are a lot of options for you when it comes to investing, like stocks and bonds. So why would you even consider investing in gold and silver? Are they not too risky, especially for beginners in the market, and even for those who are already been trading for quite some time? You can bring down the risk level as long as you have some ideas about proper asset allocation of gold and silver.
Studies have shown that an allocation of an investment portfolio in gold and silver can protect against inflation, hedge against a market downturn, and increase overall performance over the long run. But what is the right mix of gold and silver in your portfolio?
Portfolio experts advise having an asset allocation of anywhere between 5% and 25% in precious metals. Your asset allocation in gold and silver depends greatly on your individual needs, risk profile, and also to a large degree upon the other investments in your portfolio. For example if most of your assets are already real estate, oil trusts, or other commodities, your are also hedged against inflation and may not need a large portion of your money allocated towards gold or silver. On the other hand, if you have no commodities exposure, and hold long term bonds, it may be best to allocate a significant portion towards precious metals.
An allocation of precious metals may be broken down further into equities, such as gold and silver miners, and bullion. From there, advisors also suggest breaking down the allocation between gold and silver. Larger investors may also acquire platinum, but the core holdings should be gold and silver.
Now, is it better to invest in gold, or in silver? While both are good choices, a half and half plan is not necessarily the ideal way to build your portfolio. Gold is much less volatile than silver, investors looking for liquidity in something that they can sell quickly may want to start with gold. However, silver has more upside potential over the long run and will likely benefit more from an economic recovery due to its industrial uses. For this reason, investors looking for a return on capital may want to allocate a larger proportion towards silver.
During a bull market in precious metals, it is better to invest more on silver; perhaps ten percent of your portfolio is silver and five percent in gold. This is because silver rises faster as compared to gold.
One place to build a precious metals portfolio is Tradeplacer.com
Gold Tops 1260
Gold broke a new record high of $1260, taking out its previous high of $1250 in December. This area is considered a key pivot point for a number of reasons. Investors must now decide if they want to buy in hopes of a decisive breakout, or wait for a correction.
The initial spike to $1250 was propagated after India made a surprise move to buy half of the IMF's gold for sale in November for around $1040 per ounce. China was thought to be the most likely buyer of that gold, and news brought in panic buying from both institutions and individuals. When gold reached $1250 on a buying frenzy in December, Chinese officials announced that it was overpriced, and gold has since proceeded to correct.
The correction caught some institutions off guard such as Hedge Fund manager John Paulson who saw a 14% loss in the first month of his newly launched gold fund. But the correction didn't last long, and wasn't very deep. The $1040 level has held strongly, and it is increasingly looking like Marc Faber could have been right once again when he declared that gold would never trade under $1000 again. Even small dips in the metal are attracting buyers now institutional who may have missed lower prices and are taking every opportunity they can to accumulate. The result has been shorter and shallower dips. Should this area of resistance be broken to the upside, gains will soon be measured in hundreds of dollars rather than tens. Jim Sinclair has been $1 million on a breakout of gold to $1650 by early 2011. While it seems a far reaching target for 6 months, a breakout in gold now would increase the odds substantially.
While some analysts argue that this breakout is imminent, others are more cautious. Summer is the weak season for gold, and has been known to have sudden downward spikes. Also, gold has traded upwards largely on the backs of European buyers exiting the Euro. In Euro terms, gold is very extended and could be due for a correction. Another reason for caution is the divergence between gold and other precious metals. Silver is still struggling to regain its peak of $21 in 2008. Platinum is far from its highs. In addition, many gold and silver miners are far below their 2008 highs, even though gold is much higher. These non-confirmations are a warning signal that instead of breaking out, gold could be in the process of double topping.
Falling stock prices and a slowing economy could cause the metals to correct, but even if a double top occurs and gold heads back down, it could all be part of an extended cup and handle pattern leading to a larger breakout towards the end of the year. It now appears to be only a matter of time.
BP Oil Disaster- Lies and Statistics
Nearing the 2-month anniversary of the BP Oil disaster, let's evaluate the current situation. BP initially claimed that 5,000 barrels per day were leaking, and recent estimates have been increased to about 40,000 barrels per day - every day for nearly 60 days now.
Every effort that BP has made to stop the flow has failed - proving that they had no viable plan to manage such a scenario. At this point the company's most likely successful solution will be to wait until August before another oil well is drilled which can relieve the pressure of the first.
Rather than create a solution for the problem, BP executives have focused on trying to talk their way out of the problem. BP has guaranteed to clean up the mess - which is clearly a lie. If with all their resources they can't stop an oil leak within a two month period - they will never have the competence or capability to actually clean up a layer of oil covering the bottom of the ocean floor. One of two things will happen first - either BP will enter bankruptcy protection, or they will lawyer they're way with the US government to limit its liability to a nominal amount following the path of Exxon after the Valdez spill in 1989. Unfortunately, in either case the living plants and animals of the Gulf will pay for it with their lives.
Energy expert and peak oil visionary Matt Simmons concurs, and is warning that the disaster is far worse than the media is projecting. He was recently quoted by Fortune in stating "They have about a month before they declare Chapter 11. They're going to run out of cash from lawsuits, cleanup and other expenses. One really smart thing that Obama did was about three weeks ago he forced BP CEO Tony Hayward to put in writing that BP would pay for every dollar of the cleanup. But there isn't enough money in the world to clean up the Gulf of Mexico. Once BP realizes the extent of this my guess is that they'll panic and go into Chapter 11."
The implications of the leak to the environment, economy, and political system are immense. The aftermath will likely be a halt to deep sea drilling in the Gulf of Mexico and potentially globally for the foreseeable future. This couldn't have happened at a worse time and will exacerbate the production decline of oil leading to an even more severe. The next time oil prices reach $150, supply shortages will likely be curbing industrial growth - putting a very real constraint on the global economy.
Because it takes a large amount of energy to produce real assets, the long term effect will an increase in the accumulation of hard assets such as gold, silver, and other collectibles.
Is the Market a Good Risk to Reward Bet?
Since last March, the S&P 500 has rallied from a low of 666 to over 1100. But just how much juice is left? Economic indicators have already peaked and debt on every economic level from the individual on up to governments continues to expand. While Keynesians may applaud debt growth, or even just argue that it is better than the alternative, they are missing a cardinal rule. Money diverted towards debt payments, is diverted away from income producing capital investment.
The proliferation of government expansion and debt expansion is strangling economic progression. Analysts willing to take this in account must admit that even the best case scenario will see slow growth for the foreseeable future. The burden of government and debt is too great to be ignored.
Considering this, the equity markets are likely to be capped with a hard ceiling. While the S&P could rally higher especially now that it is oversold, the risk seems larger than the reward at this point. Investors buying into this market now for a 10% gain could easily see a 20% loss before this year is over.
For those wishing to take risks by speculating, hard assets are setup for a much better risk to reward ratio. Both gold and silver have been forming price bases since last year, and could breakout by the end of the year. If for some reason the precious metals do not breakout, it would likely be due to a collapse in the stock market. In such a case, gold and silver will most likely hold up better anyways as they did in 2008. While the summer is traditionally a weak season for precious metals it may offer an excellent opportunity to accumulate silver and gold in small amounts as a hedge against the softening economy.
How to Compare Bordeaux Wines - Grapes, Age and Style
Bordeaux wines are produced in the Bordeaux region, near the Southeast coast of France. Bordeaux is considered to have some of the best vineyard areas in the world, with productions including table wine to the most prestigious wine. Some of the most well-known wine from Bordeaux includes red wine from Medoc and Saint-Emilion, white wine from Graves, and dessert wines from Sauternes. With average vintage production reaching seven hundred million bottles of Bordeaux wines, you would need wine guides to make sure you have a good wine in your hands.
Comparing Bordeaux wines requires that you understand some things about Bordeaux, its history and also the region, so that you can make full use of the knowledge in wine trading.
Origin
You already learned a bit of Bordeaux in the previous paragraphs, and you know that it is in France. There are many other vineyards in France and in other regions of the world, and there was an issue when other vineyards and wine makers outside of Bordeaux began labeling their own wine "Bordeaux" after seeing how lucrative the business is. This resulted in the imposition of a law that only wines produced from Bordeaux could carry the name and, consequently, each wine were labeled based on their origin.
Grapes
Although any wine from the region is classified as Bordeaux, collectible quality wines are usually red blends of 70% Cabernet Sauvignon, 15% Cabernet Franc, and 15% Merlot grapes. Almost all wines are blends, although the percentages and grapes can of course vary.
Wine Age
One thing to consider when comparing wine is the vintage, a fancy name for the year that the wine was produced. It is said that the older the wine is, the better it is. While that may be true, it does not necessarily tell everything. There are years when the weather, harvest and process were all good, and there are times when it is not so. Do not grab a wine just because you noticed it is the oldest in the market. It may well be one that was produced during a bad year.
Chemicals and Fertilizer
You should also take note if a particular region is known to use chemicals herbicides and fungicides and fertilizers. These particular areas usually produced wine with decreased value.
Six Main Styles of Wines
There are six main classifications of wine that will be outlined here, including four red that is based on the region, and four white, which is based on sweetness:
1) Red Bordeaux and Bordeaux Superieur - these are the cheapest among the wines, and are allowed to be produced all over the region, more often sold with commercial brand names rather than as classic wines.
2) Red Cotes de Bordeaux - these wines are somewhere between the red Bordeaux and other more popular wines.
3) Red Libourne - these wines are known to have more fruit concentration and more tannin.
4) Red Graves and Medoc - these are classic wines that should be cellared before it is drunk.
5) Dry white wines - these wines are allowed to be produced throughout the region, but the most popular ones are from Graves.
6) Sweet white wines - these wines are made from grapes from Semillon, Sauvignon Blanc and Muscadelle, although the best known appellation is Sauternes.
For more information on how to invest in wine, visit Tradeplacer.com which has a real-time auction that allows you to set a bidding price for wines that you want to buy.
Silver Outshines as Markets Fall
On Friday, silver traded as an industrial metal and fell with the stock market. However, today it clearly traded as a precious metal and more than made up for its earlier decline. While gold was up 1%, silver was up over 4.5%.
Anyone trading gold for silver Monday morning as I had suggested over the weekend would definitely be please. The gold to silver ratio moved back down from 70 to 68. The ratio remains far from the historical ratio of 15 to 1, but its not bad for a one day move. While I do expect the ratio to revert to historical norms, there is no indication that it will happen anytime soon. In order for that to happen the perception of silver will have to change to a store of value first, and industrial metal second. Ironically, it is the use of silver as an industrial metal that will make this transition so severe when it finally occurs.
In the meantime, traders may look to play the range of the gold and silver ratio by opening pair trades near 70, and closing or reversing them near 60.
Gold Holds Up Against Market Turmoil
The Dow Jones closed down over 300 points on Friday, due to a heavy sell off on the realization that US job growth is only evident in government hiring. Unfortunately, government hiring doesn't contribute to economic growth, and instead crowds out private industry.
Investors looking for shelter found few safe places, but a notable one was gold. Gold was up $12 on Friday, while every Dow stock was down. Gold continues to hover around $1200, proving its stability and frustrating buyers waiting for it to fall back to $1000. It may never happen.
Some proponents of precious metals have argued that mining stocks and other resource equities are an equivalent to gold, however Friday's trading action has once again shown that assumption is false. While mining stocks may prove to be a great investment over the long run, there is no replacement for physical gold. GDX, the Market Vectors Gold Miners ETF was down 2% on Friday and offered no protection.
Silver was also dragged down with industrial metals, and the gold to silver ratio has once again topped 70. In recent months the gold to silver ratio has oscillated between 60 and 70, so it may be a good opportunity to trade gold for silver.
Could Hunt Brothers Silver Story Happen Again?
The Hunt brothers' story is a fascinating tale that sounds like a movie, except it is a true story. The Hunt brothers, Nelson Bunker Hunt and Herbert Hunt, had an amazing run, making billions in the silver market, and just as quickly lost it all. Whether this was due to the Hunt brothers' desire to corner the silver market and eventually control the market, or simply an attempt to make more money, or maybe even a way to protect them from a possible impending financial crash and hyperinflation, no one can really be sure. But they were definitely movers and shakers in the industry.
The Hunt brothers' father is H.L. Hunt, who was born in Illinois. Despite the fact that his father is quite wealthy, H.L. went out and worked in various odd jobs until his father died when he was twenty two years old. H.L. took his inheritance and tried a lot of different businesses, such as cotton farming and oil drilling. He was also known to be quite a successful gambler, and he does not hesitate to push all his chips on the table.
H.L. had a total of three wives, two of which he had simultaneously. Just the same, he was able to provide for his children and wives after being successful in the oil industry.
The second eldest son, Bunker, inherited the business, after the eldest son Hassie developed a mental condition leading to his incapacitation early in life.
Like his father, Bunker was also quite a gambler, ending in big gains in different businesses together with his brothers. While building on his Libyan oil lease, he noticed a possible danger in worldwide economy due to several factors, not the least being the Vietnam issue causing doubt in the U.S. government and Libya going into transition. He also was concerned that US inflation would get out of control. He started to acquire silver, since during that time it was illegal for U.S. citizens to own gold.
During this time came a hard hit, when other oil companies gave in to Qaddafi's demands of royalty payment from foreign oil companies. Bunker started to buy silver in a big way with his brother Herbert, and by 1974 they had fifty five million oz of silver.
Concerned about government confiscation, Bunker decided to ship their silver to Switzerland, their brother-in-law Randy Kreiling held a contest, the winners of which will become bodyguards for the delivery of silver to different storage facilities in Switzerland, via specially chartered 707 jets and armored cars traveling in the dark of night.
Bunker also tried to form a group of people, by meeting with wealthy Arabs, who will pool their silver together. The group continued to accumulate silver and in 1979 the price jumped from $6/oz to an all time high of $48.7. At the time, it was estimated that the hunts controlled one third of the entire world's supply of silver.
Unfortunately, in a panic move to curtail gold and silver's ascent, COMEX, the US exchange for silver changed some rules in the market about handling silver and contracts to prevent further buying. This resulted in a drop in the price of silver. Bunker looked around Europe for possible buying partners to help push up the price of silver. But the more the price dropped, the harder it became for them to borrow money.
Ultimately, the Hunt brothers ran out of cash and decided to, in Bunker's own words to Herbert, "Shut it down." They ended up owing 1.5 billion dollars.
Fearing financial disaster, Fed Chairman Volker approved a bailout plan for the Hunt brothers. A group of banks loaned them 1.1 billion dollars. Volker also raised interest rates dramatically to fight inflation that was careening out of control. Reagan's presidency somewhat cleared the fog, and gave a new optimism to the people and somewhat balanced the economy.
The question still remains though as to whether silver could spike again, and if it does will the government have the power to stop inflation or the rise of silver.