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Federal Reserve Chairman Ben Bernanke announced last week that the Federal funds rate will stay near zero for now. He reasoned that the “low rates of resource utilization and a subdued outlook for inflation over the medium run” would likely “warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
This will likely translate to the real interest rate (which is the rate of interest an investor can receive on a U.S. Treasury bill after allowing for inflation) remaining negative for at least another year and a half.
For gold investors, a low-to-negative interest rate has been associated with a powerful historical trend. Going back four decades, gold has experienced positive higher year-over-year returns whenever the real interest rate tipped below 2 percent. And the lower the rates drop, the stronger gold tends to perform.
Why Italy is ‘Oh, so special’
Well this is embarrassing. Turns out that Banca D’Italia released its latest financial stability report on November 2.
It’s a shame we missed it because it is literally jam-packed with market info. Worth a read on all fronts.
We’re still picking our way through it. But here’s one chart that immediately jumps out:
The Wednesday That Was...Winners from the Debacle Du Jour: What Will Thursday bring....short etf's were the place to be! Shaza
Is this how the euro ends?
Here’s how it was supposed to go: Greece first. Then, perhaps, Portugal and Ireland. If things got really bad, Spain. If the world -- or, more precisely, the euro -- was coming to an end, Italy. It was not supposed to go Greece and then Italy. No one was prepared for that. The markets weren’t prepared for that.
And so the markets are falling. The Dow is down 290 points. The Stoxx 50, a blue-chip index for the euro zone, is down 2.5 percent. Italy’s borrowing costs have skyrocketed. The Euro has plunged.
The problem, put simply, is that Italy is both too big to fail and too big to save. It’s the eighth-largest economy in the world. At $2 trillion, it’s about seven times as large as Greece’s $300 billion economy. France and Germany’s banks alone have $600 billion in exposure to Italian debt. But Barclay’s says Italy is “now mathematically beyond the point of no return.” Silvio Berlusconi might be out, but changing governments does not change arithmetic. And so the question is simple, and stark: If there wasn’t the will to really save Greece, where would the will -- and the money -- come from to save Italy?
20 comments:
New thread, but these are comments more focused on the prior one:
I take a twisted view of Bungasconi's "resignation" offer. What he's saying is "I know you despise me. But the only way I'll make you happy and leave is if you pass these 'reforms' that will screw over your retirement system and do other things to make the life of average citizens worse." He's giving Italy the choice of either cutting its own throat, or having him hang around like a dead chicken you tie to the neck of a dog that's been killing hens. (The idea being that having a rotting chicken around its neck until the parts decompose so badly that they fall off will teach the dog to stay away from chickens.) Maybe this will teach Italian voters to stay away from sex-crazed megalomaniac billionaires.
As for Italia itself, we stayed for five days in a hill town in the middle of Tuscany. My Italian is not great -- good enough read menus, road signs and figure out the basics of what's printed on museum info placards. I don't know what the opposite of illiterate is, but I can read languages better than I speak or listen to them. Many Italians speak adequate English, though, and we talk politics/economics with everyone we encounter.
The impression I got was that people are worried, but not panicked about the financial situation. Unlike the U.S., where there has been broad stability since the 1930s Depression, Italy has has ups and downs. The people there know instinctively that things can get shitty. I don't think they will freak out if the current level of civilization rolls back, whereas Americans are more likely to go ape like spoiled babies.
Italians are better able to conceive of getting by with more pasta and less meat, more idle time and less work. They've got networks of real friends and neighbours they know, not imaginary friends online, and many of them are close enough to relatives in the country that they will not starve. I get the impression that they'll do kinda like the Russians Dmitry Orlov described in "The Collapse Gap."
We mentioned several times, as we were paying our bills with cash (didn't use credit cards a single time on this last trip) that the next time we came over, we might have to carry wads of lira. The Italians didn't think that was far-fetched. Imagine the response if you told Americans that in a few years, they might be using NeoDollars that were coloured blue or something. They could not conceive of such a thing.
Change is coming. For some people, it might blow their minds, like the famous "Nightfall" science fiction story by Isaac Asimov, where a planet that had always been illuminated by the multiple suns it orbited was suddenly plunged into darkness by a simultaneous eclipse. The people wigged into insanity when they saw the stars for the first time, and realized how big the Universe was out there. If the euro collapses, I don't think Italians, or Greeks, or most other countries, will completely fall apart. Not so sure about the U.S., though.
As long as I'm posting linkys, there's an interesting 23-minute-long one from Max Keiser's weekly show on Iranian TV. He's talking with an economist named Satayajit Das about all sorts of deep, conceptual (but not boring and arcane) topics like how the economic masters are like the old charlatan in "The Wizard of Oz," the relationship between the environment and the concept of perpetual growth, all sorts of mind-expanding perspectives. It's an entertaining chat, but it's also like financial philosophy. One reason I like Max is because he's so comically outraged. But he's also educational with his interviews.
Thanks for the Italian insight Bukko. Ciao.
Mr K - the ECB bought the Italian Bonds today, so there was no panic. Of course, that is not sustainable long term, but these days, buying just 1 more day is a great achievement - which shows you how the goal posts have moved, as we adjust our viewpoints.
This line from Queenbee's thread-post jumped off the page:
"If there wasn’t the will to really save Greece, where would the will -- and the money -- come from to save Italy?"
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Everybody knew Greece really could not be saved - let alone Italy. The movers & shakers are merely trying to delay the inevitable as long as they possibly can.
Bukko, thanks for reminding us of Asimov's greatest piece of work. Time to dig up that story and read it again.
The lights go out and everybody goes crazy.
looks like a slow day on markets, with a half hearted gap up, and now looking weak.
Not exactly a huge relief rally, but I guess it's better than another day like yesterday.
Shiny metals are dull today, and miners are flattish - not exactly a 'RISK ON' day.
Probably a good day to go do something else. Like me, I have to fix a broken basement window. Damn thing swelled up (old wood, wet weather) and I couldn't open it, then broke it trying to get it closed. So I have to rip it out and replace it with a temporary wood and styrofoam frame, until I can get a new window made (2-3 weeks). Or else have an open window on the north side of my house for the winter - I like cool weather, but not that cool, inside the house.
Asimov was a great writer, I remember reading the awesome "Foundation Trilogy" as a teenager.
As I recall, that was about the decline and fall of a large empire, which makes it remarkably similar to our present situation.
The story in those books, IIRC, was that the protagonists were looking to flee Earth, center of the falling Empire, for a safe haven somewhere far away. As nothing could be done to reverse the decline, the center could not hold.
Or how about his "3 laws of Robotics", another classic theme.
Ah my life is so difficult getting up at 10:00am and looking at the blog and the shiny metals. Makes me want to crawl up and go back to sleep. Seems the world will not come to an end today, so wake me up when the lights go out.
Gold and silver has lost their luster today it seems. Ho hum. They both seem range bound which is what I prefer. I think Most would agree. A slow move up and down. So the ECB bought the bonds today Hurrah for Italy. The have kicked your can down the road again.
Bukko I appreciate your comments that the Europeans have a more philosophical view of the crisis. As for American's other than the OWS there is no panic, just denial.
The sun is shining and it is 75F so I think I will just enjoy today and not worry about tomorrow. Mammoth the mint did charge my CC for the 25th anniversary set so I am now very optimistic I will get them.
Anyone wants proof that TPTB hold all the cards, need only to look at the National Basketball Association lockout. Those players will start to fold soon as they will not be able to pay for their lavish lifestyles and the owners will once again own them. This time on their terms. The players have no choice, they have owners.
Just to continue shooting the breeze here -- I'm winding down after my second straight midnight shift, gonna get a few hours of sleep before my physical exam for immigration this afternoon -- have you been reading Jesse's analysis of the MF (Massive Fraud) Global affair? Not only were they using clients' own money for the firm's betting games, but it was apparently legal to do so! Jesse has a link to a Forbes story that details the semi-secret rule (in existence since 1974, though) that essentially says "Any money you give a broker becomes the broker's. They get to keep any profit they make betting with YOUR money. If they like you, maybe they'll throw a little your way."
I don't know how y'all trade, and maybe you're in set-ups that don't have this risk. But when you read the perspective Jesse has, and the hard-factual links he backs his thinking up with, it's clear that "investing" means giving your money to shysters who can do whatever they want, in most cases. I'm paranoid as all hell, and the more I read, the more justified I feel about my far-out fearfulness. More proof that Edgar's right -- "Trust No One!"
Das lives one suburb over from Bondi....will try and catch a gliimpse if I can find out where he has his daily
Brew! he is on The Disiplined investor next Monday ...Eu zone sure starting to accelerate fast. But ex central bankers are now firmly leading countries, so I expect this to be long and drawn out. At some point the people have to figure out what is going on! ( writing from iPad, so forgive typos)
Do you ever wonder what it is like to bet a billion dollars shorting a stock for 30 minutes and then covering? GS and JPM can do that. This is not manipulation IMHO as much as it is the big sharks swallowing the little sharks. Today for example gold was doing nothing until 9:30am. Gold suddenly drops like a lead balloon. Not enough to affect the price of gold long term, but enough to scare some other small time gamblers out. Just like a big stack has a massive advantage in no limit holdem poker. An hour later the shorts were covered and gold went back up. Isn't this a great casino when you always have the short stack?.
Now imagine a company like MF Global who has bluffed their way to the final table of The World Series of Poker doing just that. They get cocky and think they are one of the sharks too. So they go all in with their own money and their clients as well. However, this time they are holding a pair of kings and the other bigger shark calls with a pair of aces. That is the way the game is played. This is high stakes poker and someone is going to lose as there is only one player who takes it all. MF Global was not the Last Man Standing.
Will Fukushima Bankrupt Japan?
From Queenbee's linkey above:
"Gundersen says that this radioactivity ends up not only in neighboring prefectures, but in Hawaii, British Columbia, Oregon, Washington and California."
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Maybe this explains why Bukko and I write posts the way we do...
Here is another question that begs for an answer. Why is the US holding on to over 200 million ounces of gold? This is nearly twice what the next highest holder has (China). Why not just sell it? I have to assume that gold matters. It is not an ancient relic as some would have you believe.
From Washington's blog
"The war between liberals and conservatives is a false divide-and-conquer dog-and-pony show created by the powers that be to keep the American people divided and distracted."
The Tea party, OWS it's all the same nonsense. TPTB are the owners of this place and they will never ever give up their power without a fight.
Maybe this explains why Bukko and I write posts the way we do...
Hey Mammoth, I was crazy before the radionuclides started infiltrating my brain! I don't need no steenkin' particles to make me write wack stuff.
As far as the 200 million oz. of U.S. gold (assuming it actually exists) it's scary to think of why that still matters to official circles. Gordon Brown apparently didn't think so when he was Chancellor of the Exchequer and he sold off Britain's gold at the low point of the market in the late 1990s. But if you contemplate why officialdom thinks gold is important, it leads one to contemplate all sorts of esoteric, conspiratorial, Masonic/Illuminati weirdness. I get enough of that from the paranoid schizophrenics at work. To think that the mystical importance of gold might matter to higher political powers is somewhere my mind doesn't want to go. I'd be much happier to think it was just a matter of import to loony gold bugs.
TPTB are the owners of this place and they will never ever give up their power without a fight.
That's why the pigs in Berkeley, CA will use their truncheons to beat down peaceful Occupy protestors who are challenging the System, but the cops in Pennsylvania won't do much against a mob of students rioting and burning stuff because they're upset that a football coach got fired for covering up child rape. No threat to the underlying power structure if you trash the town in defence of a pedophile.
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