IMF Sends Gold to the Woodshed

Front and center this morning, we had the entire day-and-a-half rally in the risk assets completely erased, wiped out, and reversed yesterday… Recall that I told you in the morning that the euro (EUR) had lost about 1/4-cent while I was writing… Well, it held to near 1.37 until about mid morning, and then the trap door was sprung, and the euro went falling through the 1.37, and 1.36 floors!

And of course, when the Old Blue Tick Hound (used to be the Big Dog) gets sent back to the porch, all the little dogs have to go with it. Shoot Rudy, even the Japanese yen (JPY) got sent back to the porch yesterday, which is strange, because in recent days, the yen rallied along with the dollar.

Of course, the yen loss versus the dollar isn’t that strange, in that, more and more, we’re seeing investors, traders and what not, believe that the Fed is going to be raising interest rates aggressively later this year, leaving yen with a zero percent interest rate.

The Fed’s FOMC meeting minutes were printed yesterday… And, quite frankly, I don’t see anywhere in the minutes that says that interest rates will be raised aggressively… Not even raised a tiny bit! I did see the arguments by Fed Head Hoenig for a rate hike… Recall yesterday, I told you about Hoenig and his complaints with the actions of his fellow Fed Heads…

But… Just as a quick review here’s what I saw in the minutes… The January 26-27 meeting suggested that most members saw recent economic data as indicating conditions have improved with economic activity continuing to “strengthen” and the labor market downturn was seen to be waning. Yes… The Fed Heads believe that the jobs market problems are going away… Still, policymakers see the pace of the recovery as likely to be moderate providing no rationale for the Fed Heads to raise rates from the ultra-low level of 1/4% just yet…

Well, there was a very suspicious comment made by the IMF yesterday that sent gold to the woodshed, saying “On-Market Sales Of Gold To Start Shortly”. Hmmm…

Well, we all have to put our thinking caps on here to recall that the IMF had a total of 400 tonnes of gold that they wanted to sell so they could have cash to help out poor countries… And that they indeed sold 200 tonnes of gold to India last year, which leaves them 200 tonnes to sell now. Hmmm… This is where either India or China or even Russia, steps to the plate and points their bat to the center field stands, and gets ready to hit the ball so hard that it goes into orbit, and doesn’t come back to earth until clearing that centerfield wall. Yes… India, China or Russia, need to hit a home run here, folks, and take that gold off the IMF’s hands… If the IMF is that mentally incompetent to see that they need gold, then who is to say that it would be wrong for India, China or Russia to take it off their hands!

But, just the thought of 200 tonnes of gold hitting the streets, without any buyer, at this point, is more than enough to put pressure on the price of gold, folks… Just another opportunity to buy it cheaper in my book!

You know… All this talk going around that the Fed is about to raise interest rates, should have collateral damage to bonds… But, I’m not seeing it… Yes, the 10-year Treasury has gone from 2% to 3.74% in a year’s time… But, most of that move came last year… We’re just not seeing bond traders buying into the raising of interest rates like the currency guys do.

The collateral damage to bonds will come when bond traders believe that interest rates are going higher here in the US or… If the Fed were to pull a rabbit out of their hat, Bullwinkle style, and hike rates in the next couple of months, then the damage to bonds will be even greater, for there will be a sense of “fear by the Fed” of inflation… And inflation is to bond values like kryptonite is to Superman!

I was watching the news yesterday evening while doing some reading, and I heard something that just ticked me off… You see, the word came from the White House, on the 1-year anniversary of the $787 billion stimulus package, that the stimulus package was “working”… When pressed to explain how unemployment was still very high, the President responded by saying that no government program could spur an economy and that the job creation was in the second part of the stimulus… Hmmm… I distinctly recall hearing that the government’s stimulus was the only thing that would spur the economy, and that the stimulus would keep unemployment from going to 10% (it was around 8% then)… BUZZZZZZZZ! I’m sorry, but that’s the wrong answer, we’re going to have to say good-bye to you now, but we have a nice parting gift for you at the door!

It’s just another case of – and this was done in the previous administration too, folks – the government putting “spin” on their deficit spending, and no one calling them on the spin… But, in the end, what does it all mean? It means simply that our national debt has gone from what was once considered to be “unsustainable” to what is now simply immoral!

Hey! Why me worry? About this national debt? Yes… I do… And you should too! Not that I’m telling you what to do… I’m merely suggesting it!

I was reading a great article written by Congressman, Ron Paul, whom I believe is the only person in DC who understands what we’re doing to our country and currency with all this deficit spending. Ron Paul thinks the Fed is in the midst of bailing out Greece with US taxpayer funding… Let’s listen in to Ron Paul…

“Is it possible that our Federal Reserve has had some hand in bailing out Greece? The fact is, we don’t know, and current laws exempt agreements between the Fed and foreign central banks from disclosure or audit.

“Greece is only the latest in a series of countries that have faced this type of crisis in recent memory. Not too long ago the same types of fears were mounting about Dubai, and before that, Iceland. Several other countries (Spain, Portugal, Ireland, Latvia) are approaching crisis levels with public debt as well. Many have strong ties to Goldman Sachs and the case could easily be made that default could have serious implications for big US banking cartels. Considering the ties between the Fed and these big banks, it is not outlandish to wonder if the US taxpayer is secretly bailing out the entire world, country by country, even as our real unemployment tops 20 percent. Unless laws are changed to allow a complete and meaningful audit of the Federal Reserve, including its agreements with foreign central banks, we might never know if this is occurring or not.”

Ron Paul not only gets to slam the Fed’s cozying up to Goldman Sachs, but gets to point out that the Fed needs to be audited, which is the bill he sponsored that keeps getting put on the back burner in DC.

And in a follow-up to yesterday’s story about how Greece hid the extent of their deficits with derivatives, and were shown how to do this by Goldman Sachs, allegedly… German Chancellor, Angela Merkel had this to say… “It would be a disgrace if it turned out to be true that banks that already pushed us to the edge of the abyss were also party to falsifying Greek statistics.”

Yesterday’s data cupboard was “good”… Housing Starts were up 2.8% in January, less than the forecast of 4.1%, but up still… And Building Permits were awful, falling 4.9%… Industrial Production for January was up 0.9%, and Capacity Utilization was also up 0.6% to 72.6%… And finally, the Monthly Budget Deficit for January printed a better than expected $42.6 billion deficit…

Today is Thursday, so the data cupboard has the Weekly Initial Jobless Claims. The thing to think about here is that most of the country was receiving a blanket of snow last week, which could play games with this data… So, if the total drops by a large number, then hopefully calmer heads will prevail, and realize the snow had something to do with it… We’ll also see the Philly Fed Index (manufacturing), and Leading Indicators… Both are expected to be good.

Then there was this… A South Carolina lawmaker is calling for an end to the currency system (dollar) we use now… “State Rep. Mike Pitts Says Financial System Primed for Collapse; Seeks to Replace National Currency With Silver and Gold Coins”… Crazy, eh?

I think this is a little out there, eh? Well… Maybe, and maybe not… Let’s just file this thought and come back to it once in a while, eh?

To recap… The dollar rallied back all day and night, wiping out the gains the risk assets had made the previous day. The IMF announced they are ready to sell their remaining 200 Tonnes of Gold. We have some thoughts by Ron Paul, Angela Merkel, and a South Carolina lawmaker today…

About Chuck Butler 105 Articles

Affiliation: EverBank

Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter.

With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News, World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune.

Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.

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