12/16/2011 3:00 PM ET|
Germany takes Europe to the brink
The psychodrama in Europe pits Germany against almost everyone else, but the eurozone's richest member may prove to be its own worst enemy, as stalling action could mean a continental collapse.
Worldwide markets of all stripes were under pressure right off the bat on the night of Dec. 11, as it became quite clear that the EU summit had once again not accomplished much.
Yes, the Europeans appear to be moving closer to some sort of financial integration/discipline mechanism -- which pleases the Germans. But that is not today's problem.
The more urgent issue is the weakness of sovereign debt markets and European banks. On that score, the European Central Bank has not done enough to stem the onslaught of selling. Thus, the two-year financial psychodrama continues, with the most likely outcome being recession as far as the eye can see, until the ECB relents (or unless a financial collapse happens first, which seems more likely every day).
As if that weren't enough, Intel (INTC, news) preannounced fourth-quarter results on Dec. 12, and industrial production in India was reported to have declined about 5%, versus expectations of just about unchanged. The world economy is creaking, which is why so many central banks are printing money.
But for the time being, Europe is not doing enough printing, so all markets remain hostage to developments there.
Pride of the Valkyries
This week has also made clear that Germany has no intention of playing ball and instead seems determined to stand in the way of any decisive move by the ECB that might give markets what they want -- which is money printing.
Investors have already voted thumbs-down by selling early and often, and they were incentivized to act ever more aggressively on Dec. 14 when Jens Weidmann, president of Germany's central bank, emphatically denied that there would be any money printing by the ECB. "The idea that the required money will be created through the printing press should finally be brushed aside," he declared.
As I have noted in the past, the Germans do not seem to understand that their banking system is leveraged to the eyeballs and holds all kinds of risky government debt -- a redundant phrase these days -- as well as plenty of other debt of a less-dubious persuasion. Thus, they continue to play a game of chicken with themselves.
Nor do they seem to realize that each day, as the situation becomes dicier, it gets closer to screaming completely out of control and deteriorating to the point -- as we are starting to see -- where anything can trade anywhere. Perhaps most importantly, the Germans are exacerbating the evaporation of a fragile variable -- namely, confidence. Once that is lost, it is very hard to regain.
Every night now brings the risk of another episode of the European nightmare. With Germany playing a game of brinkmanship (even though it doesn't know it), a European collapse cannot be ruled out if the ECB doesn't relent -- soon, and in a big way.
Gold heads the wrong way
Around the time of Weidmann's speech, gold plunged about $30 in 15 minutes or so shortly before sinking a similar amount again, in a similar time frame, as silver shed around 7%. A similar drop occurred again the morning of Dec. 15. In all, we saw six 2%-plus moves in the price of gold in six trading days. I don't recall ever seeing so many swift plunges in so few days.
Even more curious, the SPDR Gold Shares (GLD, news)exchange-traded fund has thus far not sold many ounces, implying that the selling is coming either from the physical market somewhere else in the world (which seems possible, but it's not the most obvious explanation) or from the futures market, where open interest has already declined more than 30% from the highs. Of course, that doesn't mean that the selling can't continue; it is just an observation of what the "setup" looks like.
From a psychological standpoint, most indicators are where they get to when gold prices put in a bottom. Market Vane shows just 58% bulls (a reading last seen in late 2008, when gold was about $800 an ounce). And on Dec. 13, both the Central Fund Of Canada (CEF, news)and Central GoldTrust (GTU, news)closed at discounts to their net asset value.
Taken together, this suggests that some sort of a significant low point will be reached sometime soon, although none of these data points can predict where prices will stop once they gain downside (or upside) momentum. However, they do indicate that, in terms of duration, this correction is probably on borrowed time -- though, as noted, that doesn't tell us much about price.
Gold for Christmas?
I wish I could add some intelligent thought as to why the metals have been hammered so hard -- especially given the state of the world (the very thing that drove gold prices higher all year, until recently). But sometimes the market just does bizarre things. It is what I refer to as the "perversity of markets," where they get you to give up on an idea just as it is about to work really well. For those who are interested in gold, but are underinvested, Christmas has come early this year!
On the air
My latest interview with Eric King of King World News is a pretty thorough discussion on the current correction in gold, as well as on the euro and miners. Interested? Listen here.
At the time of publication, Bill Fleckenstein did not own shares of any equity mentioned in this column. He does own gold.
This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.
VIDEO ON MSN MONEY
Yes, the Europeans appear to be moving closer to some sort of financial integration/discipline mechanism -- which pleases the Germans. But that is not today's problemNo, the problem is all the greedy lenders and hedge funds around the world are waist deep in EU debt and they want a German Santa Claus to bail the sorry butts out. The Germans should let the PIGS eat poop and default if they're incapable of paying their own way. This politically correct climate of "your problems are my problems" is destroying everything. If you pay for something you get it or take up arms to take it and if you don't pay for something you don't get it and should be left to suffer the consequences. All of our problems, debt, deficits, housing, immigration, social benefits and wars are because some individuals think they have the right to disregard the property of others and take what they want. Screw Greece, Italy, Spain, illegal immigrants and Republican Christian religious war mongers. Pay the taxes for what you want and quit stealing the taxes others paid for what they were promised and quit acting like the greedy bastards you are.
Germany is holding an entire continent's fiscal future in its hands. So, what's wrong with this picture? The obvious answer is that Germany would do far better to make a clean break of the slackers, divest itself of the Euro, and return to the Deutschmark. Germans have always been inveterate gold hoarders--not such a bad idea, in retrospect.
Kudos to England for never entangling the British Pound in this Euro-mess.
Gold is going down right now because the German stance is basically deflationary, and will continue so long as money-printing is not done. (I'm not saying I like money-printing, it's just a fact.) It also appears (for the moment) that the Fed has realized that QE2 didn't really help anything, so that adds to the "basically deflationary" stance. Of course, who knows when Ben will fire up his Helicopter--gold will soar any day more QE is announced.
However, the overall debt deflation is deflationary monetarily (i.e. money is being paid back but not re-loaned, thereby reducing money in circulation). So without more money-printing gold will have a hard time. (Unlike the Fed, I think a little deflation would be a good thing, and help get prices back in line with the hard times.)
Im no economist, but i can say Germany and the German people are far smarter than the United states regarding fiscal matters. Our economic leaders are idiots, ie Greenspan and Bernenke, Flecksteen, etc.
Germany also manufactures and exports merchandise, our politicians and business
men in the united states have sent all our manufacturing jobs to China. They
try to downplay that fact, most Americans do not realize that its nearly impossible to buy US made clothing/products anymore.
Lets be thankful the Germans are our allies, they may have to bail the US out soon.
Soon China will be the worlds #1 superpower followed by Germany, our politicians and
business leaders have handed China all our manufacturing jobs, what kind of country
has no manufacturing base? Third world countries. Keep shopping at Wal mart, ignorance is bliss.
I think any sort of substantial resolution to all this leverage won't come until after some sort of collapse. I don't think there is enough political will anywhere in the world for there to be any sort of preemptive, corrective action. Most of the volatility we are seeing in the markets is mostly based on speculation and not fundamentals. Once we have fundamental downward adjustments, we will see more guts to solve the politically sensitive trouble spots in fiscal and monetary policies. But a lot of wealth is going to disappear forever in the meanwhile.
It's not the end of the world, just the beginning of something different. Hopefully, it's something better.
My only caution to the German Banks is that it doesn't become TOO prideful - There's a difference between being stubborn and being vengeful. Don't cross that line. I can understand the German bank's reluctance to help - why should the rest of Europe, who spent themselves into bankruptcy, suck off the teat of the hard-working German nation?
Deflation is symbolic of a deepening recession, headed for a depression spiral, where hoarding begets increased unemployment and loss of business activity, as well as devalued assets. Stabilization will require BOLD moves by both the monetary and policy makers in a coordinated response.
Some of us have been warning about the gold bubble in the making .. when greed consumes itself.
I knew an immigrant from Germany who explained it's easier for talented people to become very wealthy in America than in Germany. I have no doubt that this is true. The story is different for ordinary Americans. I've known other immigrants who have said no amount of hard work would have provided an "American dream" had they arrived in America today. Although Republicans in America are correct that people have to take personal responsibility for their lives they never talk about the bar being set SO much higher today than in the 1970's. They will never get my vote because I can see how much easier it was to go to college back then fully supporting myself and how difficult it is today for young people.
For the greatest happiness of the greatest number of people look towards Germany. This used to be true of America but those days are gone.
The entire idea of the EU combining it's currency to be 'more powerful' on the planet has shown that this idea is about as logical as you and I calling all our neighbors on the block to combine all our savings into one account - - we all know that even families have separate accounts as one spouse is thrifty and the other would blow the bank in no time flat.
The north and south of europe is very different - one is industrialized and productive, the other has little industry and is a more socialized environment. Changing this socialized way of thinking is exactly what the US is going thru right now. We've always been generous to those that 'needed' help, but the list of those that "need" or 'think they need' is one big grey zone of controversy.
Yes, mr FreedomfromthePress, for the next 4 years, shall we have more of extremely generous Obama to the unemployed, or have more of Bush/Cheney in which our generosity (via Millions/day) goes to Afganistan. What's the difference?? It's still money we don't have going out the window!
Now we have the Tea Party who think they're going to solve the problem going after the pensions of the school teachers, custodians, and bus drivers. Go Bachman!!!
There's no doubt in the minds of anyone who votes that we all need to stop spending.
It blows my mind that those in Washington, who are in such agreement on probably 70% of what is at question, just cant pass a bill on that agreeable 70% and get the ball rolling.
Could the movement in Gold / Metals be due to the inception that individuals, investors, and markets have lost complete confidence in all asset classes. With all of the insider selling going on it seems that many are expecting or forecasting an enormous crash of sorts (destruction of all asset groups regardless). I believe that Metals are the only "true" currency in the world, however, if hyperinflation ever sets in you would be better off owning land, seeds, canned goods, and a lot of guns and ammo. This market will never "make sense", function on a supply / demand basic economic principle, or even reward well-performing companies until the worlds' political climate stabilizes. Great CEO's at great companies do well because they have the ability to see the "future or climate" years in advance (Steve Jobs, Monsanto Chemical, etc...). I believe the current chaos has clouded everyone's vision across the board.
"The sky is falling, the sky is falling!" Let it all collapse and let's start over.....you can't eat gold or copper or dollars or Iphones....
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
[BRIEFING.COM] The S&P 500 ended this week with a bang, roaring to a new all-time high on the back of stronger-than-expected economic data, influential leadership, and an ongoing appreciation for the Fed's monetary policy support.
The bullish bias was evident in premarket action as the S&P futures pointed to a higher start without the benefit of any definitive news catalyst. Stocks indeed benefited from a blast of buying interest at the opening bell on this ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|