Dear Readers,
When all else fails, run.
That’s what Bernanke told his friends last week; that he will not stand for a third term as Fed Chairman, even if President Barack Obama wins the November 6 election. His term ends January 2014.
Treasury Secretary Timothy Geithner has already made it clear he wants to leave by the end of the year.
It seems those who helped put us in this mess, will leave the cleanup to us. But even when they leave, will things be any different?
Bernanke told us last month, “There is a consensus that even as the personnel change and so going forward, that this is (QE3 and low interest rates) the appropriate approach.” He’s right.
It doesn’t matter who is elected or who plays puppet at the Fed, the end result will be the same: We’re either going to print and inflate, or crash. We are in too deep now and there is no turning back.
More Good Numbers? Think Again…
The recently released numbers by the U.S. government show promising data, but I won’t rely on them for one second.
On Wednesday, sales of new single-family houses in September 2012 were at a seasonally adjusted annual rate of 389,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is the highest number since April of 2010.
But just like the recent unemployment numbers, there’s a fine print (see Another Record High.)
These numbers were based on a September unadjusted number of 31K in actual sales. This unadjusted number of 31k consisted of 10K homes Not Started, 10K Under Construction, and 11K homes actually completed. What happens if the 10k homes Not Started and the 10k Under Construction never get completed, or payments stop? Doesn’t matter, they still count.
In other words, they took the sale of 11k new and completed homes and turned it into an annualized seasonally adjusted number of 389k sales.
But let’s play Devil’s Advocate.
Let’s say those numbers are correct. Let’s say that the unemployment numbers from a few weeks ago can be trusted. Assuming the recent surveys are real and conclusive, we should see better numbers everywhere else; because money for housing must come from somewhere, and stronger unemployment numbers must mean there’s more hiring. But is there?
The Highest Since 2010
If unemployment numbers are the best they have been January 2009, then why are “firings”, not “hirings,” the highest since 2010?
North American companies have announced plans to eliminate more than 62,600 positions at home and abroad since Sept. 1, the biggest two-month drop since the start of 2010, according to data compiled by Bloomberg.
Firings total 158,100 so far this year, more than the 129,000 job cuts in the same period in 2011.
Here are just some of the massive job cuts:
- Colgate-Palmolive Co. will cut 2,300 jobs
- 5,500 cuts were announced by Dow Chemical, DuPont Co. and Advanced Micro Devices Inc. (AMD) this past week
- Hewlett-Packard Co. announced 29,000 cuts in September
- Banks are eliminating more than 19,000 positions
- AMD, the second-largest maker of processors for personal computers, said last week it will cut 15 percent of its staff, or about 1,665 jobs
- Dow Chemical is shutting down about 20 plants in the U.S. and abroad, eliminating about 2,400 jobs
- Cummins Inc. said it expects to erase as many as 1,500 jobs by the end of 2012
If there are so many people being fired, where are the jobs coming from? Can someone help answer that? Anyone?
The Merry-Go-Round
Let’s talk housing numbers.
If people are losing their jobs, how can they afford new homes?
Because the banks are lending at negative zero interest rates, which means that should translate into more easily affordable housing and a spike in housing demand, of course.
As PIMCO’s bond King Bill Gross just tweeted:
“Fed merry-go-round: inflate stocks til 2000. Then inflate housing til 2007. Then inflate stocks til 2012. Now inflate housing again.”
But are the banks lending?
The Fed is currently monetizing $40 billion in Mortgage-Backed Securities every month and keeping interest rates as low as possible in a plan to inflate housing. This should, in effect, work; low interest rates and swelling cash reserves causes banks to lend more freely.
So why aren’t we seeing this reflected in the housing market?
Let’s go back to what happened just a few years ago when the government inflated housing by giving free money to the banks.
The banks did what they were told and lent lots of money out; it led to the housing crash.
As a result, many of the banks were are being sued* because of the same lending policies that were practically forced onto them.
*(Just look at the hundreds of mortgage-related lawsuits against Country Wide and Merrill Lynch (now BofA) and the just announced $1 billion lawsuit against Bank of America by the US)
Count on It
If you can’t bet on both housing and employment numbers, then what can you bet on?
QE. No matter what happens, you can bet more money will be printed. There are already talks that the Fed will decide to expand QE3 to more than $85 billion per month, and with Treasurys instead of MBS. This is expected to be announced at the December meeting.
The U.S. public debt is now well over $16 trillion, which means US Debt-to-GDP, is now 102.94. I’ve been keeping track of the debt clock for a long time and in December 2009, public debt sat at $12 trillion. That means U.S. public debt has gained more than $1.3 trillion every year.
What About Canadians?
We’re not doing much better. Last week, the Bank of Canada released a note stating:
“…the Bank has decided to maintain the target for the overnight rate at 1 per cent. Over time, some modest withdrawal of monetary policy stimulus will likely be required consistent with achieving the 2 per cent inflation target.”
The loonie fell four days in a row, the longest losing streak versus its U.S. counterpart since May*.
(This is a good thing for trade, but it won’t last. Soon the U.S. will inflate and the Canadian dollar will bounce back against USD.)
Those who think the housing sector in Canada still has legs are out to lunch and haven’t listened to anything I have said in the past year.
Global Gold Controversy
There have been some very important gold-related events happening over the last few years.
A year ago, and more recently, I reported on the repatriation of gold by countries around the world. But now the second largest holder of gold, Germany, is apparently doing the same.
Germany Under Investigation & Gold Repatriation
According to the Telegraph, Germany withdrew two thirds of its vast holdings of gold from Bank of England vaults shortly after the launch of the euro more than a decade ago, according to a confidential report by German auditors:
Via the Telegraph:
The revelation came as Germany’s budget watchdog demanded an on-site probe of the country’s remaining gold reserves in London, Paris, and New York to verify whether the metal really exists.
The country has 3,396 tons of gold worth €143bn (£116bn), the world’s second-largest holding after the US. Nearly all of it was shifted to vaults abroad during the Cold War in case of a Soviet attack.
Roughly 66pc is held at the New York Federal Reserve, 21pc at the Bank of England, and 8pc at the Bank of France. The German Court of Auditors told legislators in a redacted report that the gold had “never been verified physically” and ordered the Bundesbank to secure access to the storage sites.
It called for repatriation of 150 tons over the next three years to test the quality and weight of the gold bars. It said Frankfurt has no register of numbered gold bars.
The report also claimed that the Bundesbank had slashed its holdings in London from 1,440 tons to 500 tons in 2000 and 2001, allegedly because storage costs were too high. The metal was flown to Frankfurt by air freight.
The revelation has baffled gold veterans. The shift came as the euro was at its weakest, slumping to $0.84 against the dollar. But it also came as the Bank of England was selling off most of Britain’s gold reserves – at market lows – on orders from Gordon Brown.
The watchdog report follows claims by the German civic campaign group “Bring Back our Gold” and its US allies in the Gold Anti-Trust Committee that official data cannot be trusted. They allege central banks have loaned out or “sold short” much of their gold.
The refrain has been picked up by German legislators. “All the gold must come home: it is precisely in this crisis that we need certainty over our gold reserves,” said Heinz-Peter Haustein from the Free Democrats (FDP).
The Bundesbank said it had full trust in the “integrity and independence” of its custodians, and is given detailed accounts each year. Yet it hinted at further steps to secure its reserves. “This could also involve relocating part of the holdings,” it said.
There’s obviously more to this story…and we shall soon see.
Central Bank Buying Continues
Both Brazil and Turkey’s central banks increased their gold holdings last week.
According to the IMF, Brazil added to its gold reserves for the first time since December 2008, and Turkey also raised its holdings.
China also continues to increase its gold holdings.
The latest release from the Hong Kong Census and Statistics Department, through the end of August, showed that China had imported a whopping gross 512 tons of gold, 10 tons more than the latest official ECB gold holdings.
Furthermore, according to Australian Bureau of Statistics, gold became the second most valuable physical export to China, surpassing coal and only behind iron ore.
Australia’s gold sales to China hit $4.1 billion in the first eight months of this year, surging by a whopping 900 percent.
Gold isn’t the only thing China wants. Bloomberg reports that Chinese silver demand is set to climb nearly 10% next year.
November Rally
Gold has taken a major hit in October, as I had predicted in Watch the Throne late September; it’s down more than 5% for the month, falling again Friday for a third straight week.
There’s strong support at the $1,700/oz range and physical demand from Asia is very strong down at these levels as they continue to accumulate on dips. However, with gold momentarily hitting below $1,700/oz, there is a risk that gold could test the 200 and 100 day moving averages of $1,663.30/oz and $1,664/oz respectively.
From a technical perspective, we still have some room to fall before gold moves back up on trend. There are few days before November officially starts and months end can often bring in intermediate lows. However, technical analysis in an age of high frequency algomachine trading doesn’t work as well as it used to.*
(That’s why so many old school technical guys are confused)
We’re in an election year and it would interesting to see how gold fares leading up to the actual election date of November 6.
Regardless, as I had mentioned before, I would take any of these dips as a buying opportunity.
In the last 10 years, November has been the strongest performing month for gold; in the last 40 years, its been the second. Furthermore, with the upcoming uncertainty surrounding the US “fiscal cliff” and the yet another possible announcement of an increase in QE in December, we should see gold continue to move up. That could be very beneficial for gold and related stocks.
Focus on fundamentals.
When High Grade Speaks, it’s Time to Listen.
Corvus Gold (TSX: KOR) (OTCQX: CORVF)
We just released our report on Corvus Gold last week and the stock has been performing very well.
If you missed it, you can find it here: http://equedia.com/reportarchive/corvusgoldreport/
No aggressive selling has been shown, despite the fact it’s now near its 52-week high; setting a new one earlier in the week. I credit this to great share structure and strong shareholders.
Corvus has major catalysts in the coming months and no one wants to bet against management’s capacity to deliver.
An updated PEA is expected shortly, while completion of a feasibility study is scheduled for Q1 2013 (which should be a significant factor in a higher valuation).
However, I am more excited about the high grade zones that Corvus is attacking at Yellow Jacket right now. They should have some results from the follow up drill holes throughout November and early December.
As I mentioned in my report last week, if Corvus can continue to see success with the high grade zones, it will be a massive game changer.
I am not kidding – it will rewrite Corvus’ story completely.
Until next week,
Ivan Lo
Equedia Weekly
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