Lonestar1

Gold Breakdown

It is a valid point that in a total chaos, the first priority is to pile up food supply in the house and double check your security alarm, and better yet, buy a gun. It sounded like a joke when Bear Sterns collapsed. But when Lehman collapsed, this is not a 100% joke any more.

Short-term traders can short or long gold ETFs, etc, and do whatever they like to make some money. But as a wealth protection tool, physical gold has an indisputable role. We are argueing about different things.

Can anybody explain why physical gold market is so tight if not for preservation of wealth, or as an insurance? I store about 50% of mine in $. The rest are in some other currencies (which I believe won't be destroyed in this depression) + Gold and silver + real estates.

As for $, massive devaluation is a must in order to rebuild America. It can not hang on an economy with 70%-80% services, a large % of which is a money losing financial games.

The rise of $ in the past few months are the result of several moves: payment squeeze on trade deficit countries who still prefer to settle in $; withdraw of oversea investment by US investors; potential easing by other central banks while the US is already done.

It appears to me all financial tricks have been played out. Currency swaps among other central banks are on the rise, which clearly try to squeeze the $ out of their mutual trade settlement system. The world can not go back to "goods for goods" trade. But they are trying to find other ways to settle. Wolrd trade volumes are falling fast.

Gold Breakdown

sorry for tyops there. Also, another clarification on bloomberg prices, there is a lag on futures. so the $5 different may be just due to the time difference. If match the time, the difference appears to be within $1. Just a clarification

Gold Breakdown

I agree with dieuwer. the chart is not well drawn. It stayed just barely above the bottom of the price channel since mid October. Also if you use spot price, together with other technical indicators, such as GPF, 50D MAV, etc, it is even more clear. On Bloomberg, use: Golds <INDEX> as a proxy of gold spot, you will see spot price is at leat $5 above the futures. Gold backwardation has been a hot topic a few weeks ago. I am not agoldbug, but the theory behind the backwardation is solid. I checked multiple local brokers on physical gold market condition to confirm the exceptional tightness. Technically speaking, my understanding is that the bears have completed their agenda. A breaout probably will be done by early February.

Let's see.

Gold Even More Attractive as Cash Yields Approach 0%

paper gold buyers need to have some patience. The technical breakout should materilize by early February. Also Gold needs to break away from the anti-$ pattern. Today is a good sign. Physical gold is still the best.

Some Positives About Municipal Bond ETFs

you have to get a real broker to call the retail trading desk of the dealers to find some pre-refunded bonds. Be careful to check if the bond is backed by Treasuries. A small percentage of pre-refunded bonds are backed by Freddie or Fannie papers.

I don't know any closed or mutual funds are pure preres. Short duration funds may have a good percentage of preres. Again, I don't really like mutual funds in this environment.

Some Positives About Municipal Bond ETFs

There are some pockets of munis that are good, such as pre-refunded bonds, which are really the same thing as Treasuries mostly, but tax free. The issuer can not touch the debt service accounts.

I would be more interested in buying short term, best credit munis or pre-refunded bonds, not mutual funds. One must understand that MUTUAL FUNDS HAVE NO MATURITIES. If I hold a 5-year Virginia state go bond, i would be made whole in 5 years + all the coupons, unless Virginia goes belly up. Even if hyperinflation occurs, I still get back my money. But if I buy muni mutual funds, and hyperinflation occurs, my NAV may follow the pattern of MSFT after year 2000.

A friend told me that she was advised by her broker to buy a muni mutual funds in 2007, and lost about 40% by the end of 2008. Can you expect the broker to explain to her what happened given the huge decline in interest rates? I believe the broker has no clue, either. Many wealthy families were inflicted with such damage by a product they traditionally had a good faith in. It is fair to say that that faith is not there any more.

Regarding the defaults scenario, I agree the gov will have to do something before too late.

Some Positives About Municipal Bond ETFs

Frankly, the muni market is just another subprime market to explode in 2009. The only positive is the possibility of bailout by Treasury or the Fed. The Treasury bailout would blur the political structure of the nation, while the Fed lacks the legal authority to step in. The Congress is trying to solve both issues in its proposed new bill.

Muni ETFs are way over priced, if you look at the underlying bonds. The bottom line is this: without bailout, defaults should be massive across board. At states level, mere reduction of work force (20% ?) or services, won't do it.

Deleveraging has and will continue to cause much more pain. In fact, theortically one can not deleverage a system which is so highly leveraged. Either more capital is found, or, asset prices have to come down to appropriate levels.

For munis, those 5% or 7% after tax yields are not attractive if defaults are a possibility. High yield market can offer high teens, and still have no buyers. I have heard some convertible bonds offer more than 50% yields, but nobody cares.

Five New Forces to Drive Gold Higher

There is no argument that $ has never been in such precarious state in its entire history. The break from the gold-peg did not cause a catastrophic collapse of $ was due to the fact that the west, including Japan, has to stay united to defeat a more pressing threat, i.e., the Soviet Union's expansionary policy. Instead, the $ is allowed to slide gradually and became "your problem" for the west. It was a small price to pay.

Today's world is different. $ is anchored to nothing. Or perhaps it is fair to say that $ is now pegged to a mix of Chinese yuan and Japanese yen, not the other way around as popularly manifested. Its strength in 2008 was derived from these two sources, in my mind. This is strange, because credit should be offered by producers, not the buyers.

And Europe is not threatened by anybody. That's why they were so itchy on G20 meeting in November. That is not to say they will have any chance to be successful. Indeed, they will have no chance.

I agree with the point 1 that this zero yields angered China and Japan. However, it is inconcieveable they would unwind their $ holdings, but there is no assurance that other lesser "stakeholders" wouldn't do so. Turbulance to come, for sure.

Gold is not an anti-$ trade. It is when all currencies are in question, which is clearly the case still unfolding given all the printing of paper money around the world, inlcuding China. How this is going to settle is wide open.

Crisis Contained as Fed Purchases Mortgage Backed Securities

The Fed's purchase of MBS is not going to work because such actions would cause great confusion in the pricing of MBS. Clearly the Fed would greatly overprice the MBS, while any sensible private investor would seek deals similar to the one done by Lone Star/Merrill Lynch. The net result is likely to be that while the Fed is actively buying MBS or ABS, etc, private investors would just sit there and watch. The crunch may get worse.

Similarly, another $20bn injection into GM would make anybody buy GM stock? A walking deadbody can not be revived.