Sunday, September 26, 2010
Thursday, September 23, 2010
Silver
Wow Silver really busted a move higher- Two years ago I was talking about Silver reaching new highs on the back of Gold mainly because most who invest in precious metals do so through gold and Silver would be the lagging commodity. 30 year highs!
Wednesday, September 22, 2010
Tuesday, September 21, 2010
For the Gold bugs
Bangladesh bought 10 tonnes of the gold on sale from the I.M.F. last week. This leaves 88.3 tonnes to sell now. The 10 tonnes that Bangladesh bought cost them around $1,260 an ounce. This tells us that price was not a determinant in the matter. This may surprise many, but it does highlight something about why central banks in general are buying gold now.
The potential, not just for currency crises, but serious foreign exchange structural problems is huge. The international level of cooperation between nations is poor [as we are seeing in the U.S. China faceoff over the Yuan exchange rate against the Dollar] leaving us uncertain at the prospect of unstable currency markets. This has vastly increased the attraction of gold as a reserve asset. As such the price paid for gold in foreign exchange reserves is hardly relevant. When that dark and rainy day comes its use in settling pressing foreign obligations will heavily outweigh what the gold cost. It's having the gold to pay these obligations or guarantee foreign currency obligations that will matter then.
Why can't anybody buy anyway?
The I.M.F. has chosen to sell their gold in only two ways;
1. They will sell direct to central banks and announce the sale after the sale is complete.
2. It will sell the remaining gold on the open market through the bullion banks over time in a manner that will not influence the price. This can result in just a couple of tonnes sold right up to 15+ tonnes sold in any month.
China not a Buyer but others would like to
You may be surprised that China has not made a direct bid for the gold on sale from the I.M.F., but there are good reasons why they have not bid. The Chinese central bank, the People's Bank of China does not buy gold for its reserves direct from any market or auction. It uses an agency to do the buying. This agency can hold the gold for 5 years and then pass it to the P. of C. Only at that point does the central bank declare it has bought it. This anonymity is very important to China. If it were known that China had a serious long-term commitment to buying gold there is no doubt that it would precipitate such a jump in the gold price that the market could destabilize and China not be able to access open market gold.
Because of these considerations of a direct and then announced approach by China to the I.M.F. we doubt very much if China will now be a buyer. They will continue to buy in the open market anonymously.
If the I.M.F. had been willing to sell direct to large institutions [such as China's buying Agency if they had been a buyer] the gold would have been sold to it and/or to other private funds and sovereign wealth funds very quickly after the initial announcement to sell gold had been made by the I.M.F. In fact, there are many non-central bank institutions that want to approach the I.M.F. to buy the gold, but the two selling routes are inviolate. This means that, with only 88.3 tonnes left to sell it the opportunity to buy gold in a large amount [only by central banks] is slowly disappearing.
A potential buyer could have been India, who made the largest purchase of I.M.F. gold at 200 tonnes. Just after India bought the 200 tonnes of gold from the I.M.F. it stated that it may be a further buyer of this gold. Will they come in again, or will more Asian central banks come in for the first or second time? Well, both time and supply are running out for all central banks buyers.
As the buying has come from Asian countries who know and love gold, the most likely buyers will be from that part of the world, not from the developed world's central banks. For the West to be buyers, may well be seen as undermining the paper currency world.
At the present rate of selling in the 'open' market the I.M.F. will have completed selling in 6 months time. So the clock is ticking. That's why we expect one or more announcements from the I.M.F. on further sales to central banks soon. These will come anytime from now and over the next 6 months. We would not be surprised is the entire remaining amount goes in one fell swoop, soon. No-one can say who for sure will be buyers.
The IM.F.s' announcement that I.M.F. gold sales are complete will be a trumpet signal to the market that supplies have narrowed. Then what?
The potential, not just for currency crises, but serious foreign exchange structural problems is huge. The international level of cooperation between nations is poor [as we are seeing in the U.S. China faceoff over the Yuan exchange rate against the Dollar] leaving us uncertain at the prospect of unstable currency markets. This has vastly increased the attraction of gold as a reserve asset. As such the price paid for gold in foreign exchange reserves is hardly relevant. When that dark and rainy day comes its use in settling pressing foreign obligations will heavily outweigh what the gold cost. It's having the gold to pay these obligations or guarantee foreign currency obligations that will matter then.
Why can't anybody buy anyway?
The I.M.F. has chosen to sell their gold in only two ways;
1. They will sell direct to central banks and announce the sale after the sale is complete.
2. It will sell the remaining gold on the open market through the bullion banks over time in a manner that will not influence the price. This can result in just a couple of tonnes sold right up to 15+ tonnes sold in any month.
China not a Buyer but others would like to
You may be surprised that China has not made a direct bid for the gold on sale from the I.M.F., but there are good reasons why they have not bid. The Chinese central bank, the People's Bank of China does not buy gold for its reserves direct from any market or auction. It uses an agency to do the buying. This agency can hold the gold for 5 years and then pass it to the P. of C. Only at that point does the central bank declare it has bought it. This anonymity is very important to China. If it were known that China had a serious long-term commitment to buying gold there is no doubt that it would precipitate such a jump in the gold price that the market could destabilize and China not be able to access open market gold.
Because of these considerations of a direct and then announced approach by China to the I.M.F. we doubt very much if China will now be a buyer. They will continue to buy in the open market anonymously.
If the I.M.F. had been willing to sell direct to large institutions [such as China's buying Agency if they had been a buyer] the gold would have been sold to it and/or to other private funds and sovereign wealth funds very quickly after the initial announcement to sell gold had been made by the I.M.F. In fact, there are many non-central bank institutions that want to approach the I.M.F. to buy the gold, but the two selling routes are inviolate. This means that, with only 88.3 tonnes left to sell it the opportunity to buy gold in a large amount [only by central banks] is slowly disappearing.
A potential buyer could have been India, who made the largest purchase of I.M.F. gold at 200 tonnes. Just after India bought the 200 tonnes of gold from the I.M.F. it stated that it may be a further buyer of this gold. Will they come in again, or will more Asian central banks come in for the first or second time? Well, both time and supply are running out for all central banks buyers.
As the buying has come from Asian countries who know and love gold, the most likely buyers will be from that part of the world, not from the developed world's central banks. For the West to be buyers, may well be seen as undermining the paper currency world.
At the present rate of selling in the 'open' market the I.M.F. will have completed selling in 6 months time. So the clock is ticking. That's why we expect one or more announcements from the I.M.F. on further sales to central banks soon. These will come anytime from now and over the next 6 months. We would not be surprised is the entire remaining amount goes in one fell swoop, soon. No-one can say who for sure will be buyers.
The IM.F.s' announcement that I.M.F. gold sales are complete will be a trumpet signal to the market that supplies have narrowed. Then what?
FOMC
FOMC meeting today. Day off for me then. Very interested in hearing what the are going to say about the unemployment.
Monday, September 20, 2010
Wall Street revenues down
Inside the great investment houses on Wall Street, business has taken a surprising turn — downward.
Even after taxpayer bailouts restored bankers’ profits and pay, the great Wall Street money machine is decelerating. Big financial institutions, including commercial banks, are still making a lot of money. But given unease in the financial markets and the economy, brokerages and investment banks are not making nearly as much as their executives, employees and investors had hoped.
After an unusually sharp slowdown in trading this summer, analysts are rethinking their profit forecasts for 2010.
The activities at the heart of what Wall Street does — selling and trading stocks and bonds, and advising on mergers — are running at levels well below where they were at this point last year, said Meredith Whitney, a bank analyst who was among the first to warn of the subprime mortgage disaster and its impact on big banks.
Worldwide, the number of stock offerings is down 15 percent from this time last year, while bond issuance is off 25 percent, according to Capital IQ, a research firm. Based on these trends, Ms. Whitney predicts that annual revenue from Wall Street’s main businesses will drop 25 percent, to around $42 billion in 2010, from $56 billion last year.
While the numbers will not be known until after the third quarter ends and financial companies begin reporting earnings in October, the pace of trading this summer was slow even by normal summer standards. Trading in shares listed on the New York Stock Exchange was down by 11 percent in July from 2009 levels, and August volume was off nearly 30 percent.
“What’s happened in the third quarter is that after a very slow summer, people expected things to come back,” said Ms. Whitney. “But they haven’t, and the inactivity is really squeezing everyone.”
The downward slide on Wall Street parallels a similar shift in the broader economy, which has slowed considerably since showing signs of a nascent recovery this spring. And if banks come under pressure, all but the safest borrowers may struggle to get loans.
With less than two weeks to go in the third quarter, companies will be hard-pressed to fulfill earlier, more optimistic expectations.
“It’s like the marathon: if you’re five miles behind, you can’t make that up in the last 10 minutes of the race,” said David H. Ellison, president of FBR Fund Advisers, a money management firm that specializes in financial companies. Many banks are barely scraping by in traditional Wall Street business.
As a result, executives, portfolio managers and analysts say that even the mighty Goldman Sachs, which posted a profit every day for the first three months of the year, is unlikely to deliver the kind of profit growth that investors have come to expect.
Keith Horowitz, a bank analyst at Citigroup, said he expected Goldman Sachs to earn $7.8 billion in 2010, a 35 percent decline from the $12.1 billion it made last year.
The drop in trading translates into lower commissions for brokerage firms, as well as a weaker environment for underwriting initial public offerings and other stock issues, traditionally a highly lucrative niche.
Banks are also scaling back on making bets with their own money — known as proprietary trading — another huge profit source in recent years that will soon be forbidden under terms of the financial reform legislation passed by Congress this summer.
Indeed, analysts have finally started to bring their forecasts in line with the new reality. On Sept. 12, Mr. Horowitz reduced his estimates for third-quarter profits at Goldman and Morgan Stanley.
Mr. Horowitz had predicted Goldman would make $1.75 billion in the third quarter, or $3 a share; he now expects Goldman’s profit to total $1.34 billion, or $2.30 a share. For Morgan Stanley, his revision was even steeper, with earnings expectations revised downward to $140 million, or 10 cents a share, from $726 million, or 53 cents a share.
Mr. Horowitz’s estimates are considerably lower than the consensus among analysts who track the two companies. If the other analysts revise their estimates closer to his, they would put pressure on the shares.
One of the rare bright spots for Wall Street recently has been the issuance of junk bonds, as ultra-low interest rates encourage investors to seek out riskier debt that carries a higher yield. But that will not be enough to offset the weakness elsewhere, said one top Wall Street executive who insisted on anonymity because he was not authorized to speak publicly for his company, and because final numbers would not be tallied until the end of the month.
To make matters worse, he said, many Wall Street firms increased their work forces in the first half of the year, before the mood shifted and worries of a double-dip recession arose. If activity remains anemic, firms could soon begin cutting jobs again.
“I think the summer was horrible for everyone, and no one expected it to be as bad as it was,” he said. “It’s coming back a little bit in September but nowhere near enough to make up for what happened in July and August.”
The profit picture is brighter for diversified companies like JPMorgan Chase and Bank of America, which have larger commercial and retail banking operations in addition to their Wall Street units, but some analysts say earnings expectations for them could come down as well.
“Estimates still seem a little high, and the revenue story for all the banks is not a good one,” said Ed Najarian, who tracks the banking sector for ISI, a New York research firm.
With interest rates plunging, banks are making less off their interest-earning assets like government bonds and other ultra-safe securities. At the same time, demand for new loans remains weak.
One wild card will be the credit card portfolios at major banks like JPMorgan, Bank of America and Citigroup. As delinquencies ease, Mr. Najarian said, credit losses are likely to decline. That trend helped earnings at JPMorgan in the second quarter, and could be crucial again in the third quarter.
Ms. Whitney says the gloomy short-term predictions foreshadow a series of lean years in the broader financial services industry.
Indeed, she said the Street faced a “resizing” not seen since the cutbacks that followed the bursting of the dot-com bubble a decade ago.
“We expect compensation to be down dramatically this year,” she wrote in a recent report. She predicts the American banking industry will lay off 40,000 to 80,000 employees, or as many as 1 in 10 of its workers.
That may be extreme, but Ms. Whitney argues that the boom years are not coming back anytime soon. As both consumers and companies cut back on debt, and financial reform rules put the brakes on profitable niches like derivatives and proprietary trading, the engines of earnings growth for the last decade will continue to sputter.
Even after taxpayer bailouts restored bankers’ profits and pay, the great Wall Street money machine is decelerating. Big financial institutions, including commercial banks, are still making a lot of money. But given unease in the financial markets and the economy, brokerages and investment banks are not making nearly as much as their executives, employees and investors had hoped.
After an unusually sharp slowdown in trading this summer, analysts are rethinking their profit forecasts for 2010.
The activities at the heart of what Wall Street does — selling and trading stocks and bonds, and advising on mergers — are running at levels well below where they were at this point last year, said Meredith Whitney, a bank analyst who was among the first to warn of the subprime mortgage disaster and its impact on big banks.
Worldwide, the number of stock offerings is down 15 percent from this time last year, while bond issuance is off 25 percent, according to Capital IQ, a research firm. Based on these trends, Ms. Whitney predicts that annual revenue from Wall Street’s main businesses will drop 25 percent, to around $42 billion in 2010, from $56 billion last year.
While the numbers will not be known until after the third quarter ends and financial companies begin reporting earnings in October, the pace of trading this summer was slow even by normal summer standards. Trading in shares listed on the New York Stock Exchange was down by 11 percent in July from 2009 levels, and August volume was off nearly 30 percent.
“What’s happened in the third quarter is that after a very slow summer, people expected things to come back,” said Ms. Whitney. “But they haven’t, and the inactivity is really squeezing everyone.”
The downward slide on Wall Street parallels a similar shift in the broader economy, which has slowed considerably since showing signs of a nascent recovery this spring. And if banks come under pressure, all but the safest borrowers may struggle to get loans.
With less than two weeks to go in the third quarter, companies will be hard-pressed to fulfill earlier, more optimistic expectations.
“It’s like the marathon: if you’re five miles behind, you can’t make that up in the last 10 minutes of the race,” said David H. Ellison, president of FBR Fund Advisers, a money management firm that specializes in financial companies. Many banks are barely scraping by in traditional Wall Street business.
As a result, executives, portfolio managers and analysts say that even the mighty Goldman Sachs, which posted a profit every day for the first three months of the year, is unlikely to deliver the kind of profit growth that investors have come to expect.
Keith Horowitz, a bank analyst at Citigroup, said he expected Goldman Sachs to earn $7.8 billion in 2010, a 35 percent decline from the $12.1 billion it made last year.
The drop in trading translates into lower commissions for brokerage firms, as well as a weaker environment for underwriting initial public offerings and other stock issues, traditionally a highly lucrative niche.
Banks are also scaling back on making bets with their own money — known as proprietary trading — another huge profit source in recent years that will soon be forbidden under terms of the financial reform legislation passed by Congress this summer.
Indeed, analysts have finally started to bring their forecasts in line with the new reality. On Sept. 12, Mr. Horowitz reduced his estimates for third-quarter profits at Goldman and Morgan Stanley.
Mr. Horowitz had predicted Goldman would make $1.75 billion in the third quarter, or $3 a share; he now expects Goldman’s profit to total $1.34 billion, or $2.30 a share. For Morgan Stanley, his revision was even steeper, with earnings expectations revised downward to $140 million, or 10 cents a share, from $726 million, or 53 cents a share.
Mr. Horowitz’s estimates are considerably lower than the consensus among analysts who track the two companies. If the other analysts revise their estimates closer to his, they would put pressure on the shares.
One of the rare bright spots for Wall Street recently has been the issuance of junk bonds, as ultra-low interest rates encourage investors to seek out riskier debt that carries a higher yield. But that will not be enough to offset the weakness elsewhere, said one top Wall Street executive who insisted on anonymity because he was not authorized to speak publicly for his company, and because final numbers would not be tallied until the end of the month.
To make matters worse, he said, many Wall Street firms increased their work forces in the first half of the year, before the mood shifted and worries of a double-dip recession arose. If activity remains anemic, firms could soon begin cutting jobs again.
“I think the summer was horrible for everyone, and no one expected it to be as bad as it was,” he said. “It’s coming back a little bit in September but nowhere near enough to make up for what happened in July and August.”
The profit picture is brighter for diversified companies like JPMorgan Chase and Bank of America, which have larger commercial and retail banking operations in addition to their Wall Street units, but some analysts say earnings expectations for them could come down as well.
“Estimates still seem a little high, and the revenue story for all the banks is not a good one,” said Ed Najarian, who tracks the banking sector for ISI, a New York research firm.
With interest rates plunging, banks are making less off their interest-earning assets like government bonds and other ultra-safe securities. At the same time, demand for new loans remains weak.
One wild card will be the credit card portfolios at major banks like JPMorgan, Bank of America and Citigroup. As delinquencies ease, Mr. Najarian said, credit losses are likely to decline. That trend helped earnings at JPMorgan in the second quarter, and could be crucial again in the third quarter.
Ms. Whitney says the gloomy short-term predictions foreshadow a series of lean years in the broader financial services industry.
Indeed, she said the Street faced a “resizing” not seen since the cutbacks that followed the bursting of the dot-com bubble a decade ago.
“We expect compensation to be down dramatically this year,” she wrote in a recent report. She predicts the American banking industry will lay off 40,000 to 80,000 employees, or as many as 1 in 10 of its workers.
That may be extreme, but Ms. Whitney argues that the boom years are not coming back anytime soon. As both consumers and companies cut back on debt, and financial reform rules put the brakes on profitable niches like derivatives and proprietary trading, the engines of earnings growth for the last decade will continue to sputter.
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