“Britain is back in recession!” screamed the newspapers last week.
“Tell us something we don’t know”, shrugged the markets.
Neither the FTSE 100 nor even the pound seemed particularly perturbed by the news that Britain’s economy had shrunk for a second quarter in a row.
Even if the figures are correct (they’re preliminary estimates after all), the reaction of some sections of the press and politicians was over the top.
You want to know why Britain is in recession?” We had a boom. Now we have a bust. That’s the way it works. It’s as simple as that. In 2008, we were in a serious mess. You can’t then expect, less than four years on from that cliff-edge, for everything to be booming again.
In the US, things seemed to have picked up much more quickly. But there is a reason for that. If the US is indeed recovering now, it’s because – despite the best efforts of the Federal Reserve – they had something closer to a proper crash.
The crucial difference was that, unlike the Bank of England, the Federal Reserve was unable to lower the cost of mortgages rapidly. As a result, house prices collapsed – and remain about a third lower than they were at the peak. Unemployment rocketed – and remains extremely high. About a sixth of the population is on food stamps.
Don’t be under any illusions – the Americans have gone through a much more painful crash than us. But it means that their banks have been forced to write off debt.
We chose the stagnation route out of the slump instead. Debts that should have been written off – from mortgages to business loans - have instead been allowed to stagger on, by lowering the cost of servicing them. Given this misuse of resources, it’s little wonder that we are still in a recession.
The real reason no-one is buying houses
The struggling economy is also having an impact on the housing market, says MoneyWeek editor-in-chief Merryn Somerset Webb on her blog. “There is much talk about the low level of volumes in the UK market – and about how that is the thing that is keeping prices up.
“People, convinced their house is still worth a bubble number, won’t sell at the new market price. So supply is crunched and prices have stayed higher than they should have. Soon, or so the story goes, sellers will blink and cut their prices properly, allowing volumes to rise and markets to clear.”
But Merryn has a different theory. She draws attention to the fact that mortgage providers are raising their rates or making “sneaky” changes to contracts. Perhaps the problem isn’t that people are greedily holding out for an unrealistic price for their home, after all.
Instead, perhaps it’s “all about the price they have to pay for a new mortgage on the next house they buy. The Financial Services Authority has pointed out that the UK is home to hundreds of thousands of mortgage prisoners – people who can’t move because they can’t get a new mortgage at all. They have too little equity or too low an income for our newly prudent mortgage lenders to touch with a bargepole”.
Even those people who aren’t officially ‘mortgage prisoners’ might still be stuck, says Merryn. Falling house prices will have pushed up borrowers’ (they owe more as a percentage of their house’s value than they used to).
Combined with stricter terms from lenders, this means that even people who think they have ‘portable mortgages’ – the type you can take with you when you move house – will have to apply for a new loan. And that, in the current climate, means they will end up paying more.
So “the lack of volume in the market might not be about sellers not being able to cope with the price of houses, but something that lies behind that – sellers not being able to cope with the price of new credit”.
The blog led to a debate in the comments section below. Regular commenter Boris Macdonut felt that the increases by mortgage providers are not significant enough to affect the housing market. “The real reason is not a modest cost increase but fear and distrust.”
But as Dr Ray pointed out, while the numbers may seem small, in percentage terms they are quite big. For example “an increase from 4.27 to 4.6 isn't a 0.33% increase. It is a 7.73% increase”.
Meanwhile, Agabus25 put it down to various factors. “It's not one single thing but the combination: higher rates, fees that you can no longer capitalise, withdrawal of interest-only, no extended maturities (ie no longer than 25 year loans), no excessive salary multiples, no sky-high loan-to-value, plus the squeeze on middle class earnings. Combine just a couple of these and the total effect is substantial enough to become a deal breaker.”
The game is completely rigged
Money printing by the Federal Reserve and other central banks, means that the idea of a ‘risk-free’ rate – essential to calculating the value of anything in modern finance - is now obsolete.
Indeed, says Tim Price: “There’s one thing I know about investing today - the game is completely rigged”.
Tim, who writes The Price Report newsletter, isn’t one to pull his punches. As far as he’s concerned: “The world’s governments and their central bank cronies are conspiring to distort almost every investment you can put your money in right now. But they can’t do it forever”.
He has a pretty bleak view of where things are heading. “The plain fact is that we are in the midst of a devastating sovereign crisis.” Yet Tim thinks that investors – if they’re prepared – can protect their money from the coming storm. And that’ll leave them in a good position to take advantage of the opportunities that will arise from that.
Is the gold bull market over?
In the past few months the gold price has wobbled. Some have even said that the bull market for gold is over. Is it?
In the current bull market, gold has regularly had sharp run-ups, just as happened last year. And each time it’s happened, “a lengthy period of consolidation and digestion has followed before we have seen new highs. Often these periods last for more than a year. In some cases – if the preceding move has been large – the consolidation has lasted for over 18 months”.
So don’t worry. Gold is just having a breather. “I maintain we will eventually see new highs, just not any time soon.”
In fact, now could be a good time to stock up if you haven’t already. “If the patterns of previous moves continue to be our guide, we can expect gold to start creeping up from here – perhaps to about $1,800 before a pullback. I would like to see gold get above its 252-day moving average and stay above it.
“If it doesn’t and gold starts to creep down, I will be nervous. But continue to hold your gold. The fundamentals have not changed. And if you don’t own any, I would say the odds favour now as a decent opportunity to accumulate.”
James McKeigue
Monday, 30 April 2012
Wednesday, 4 April 2012
Is now a good time to buy gold?
‘If you are going to panic’, I’ve heard it said, ‘Panic first. You can investigate later.’
Gold had another one if its bad days yesterday. It fell some $30 or $40 an ounce, depending on when your day began. It fell another $13 overnight.
But now really is not the time to be panicking. If you start now, you’ll be very late to the panic party.
In fact, if you have been looking for an opportunity to increase your exposure to gold, now could be the chance you’ve been waiting for.
Gold is consolidating after its 2011 excesses
My longer-term prognosis for gold remains unchanged.
When gold has one of its big run ups, as it did in the periods to May 2006 and February 2008, afterwards, it goes though a lengthy period of consolidation. It’s trying , it’s frustrating, but that’s what it does.
Eventually it gathers impetus again, challenges the old high and, after several attempts, breaks out. The old high then becomes support. But it is many months – sometimes more than 12 – before we challenge that old high.
Gold is now in consolidation mode after its 2011 excesses. It will be many months yet before we break out to new highs. But we will. And two or three years after we do, gold will have another big run-up and sell-off and that $1,920 figure will be the line of support – just as both the $700 and $1,000 have been.
We still have colossal monetary stress, unpayable national debts, negative real interest rates and central banks that – despite yesterday’s jawboning by Federal Reserve chief Ben Bernanke – have gone beyond the point of no return on the money-printing path.
He is not printing at the moment because he doesn’t have to. US stock markets have been the stellar markets. They won’t be forever.
In the meantime, I’d like to introduce you to another moving average, one that’s worked particularly well for gold over the years. You may remember how well my 144-day moving average worked in the period from 2009 to late 2011. Well, now I’d like to tell you about the 252-day moving average.
When gold hits this line, it’s usually a good time to buy
I use the 252-day moving average because there are usually 252 trading days in year, so, in effect, it shows the average price over the last year.
Here we see gold from 2001, when the bull market began, to 2008. The red line underneath is the 252-day moving average.
You can see that throughout that seven-year period, gold repeatedly came back to it and found support there. In other words, it consistently marked an excellent entry point.
These things don’t work forever, however, and in 2008, as the world panicked (did you panic first?), gold got too far above the moving average, and then for a few sorry months in the latter part of the year, the price plunged through it.
From 2009 it hardly worked at all. Why? Because it didn’t have to.
From spring 2009 to late 2011 gold, such was its strength, never went back to its one-year average. Instead it consistently found support at the 144-day moving average – the green line on the chart below. The ‘irrelevant’ 252-day moving average is in red.
But in September last year, as we all know, gold went too far too fast.
One casualty of the subsequent wash-out has been the 144-day moving average (we are currently sitting below it). It is, for the time being, no longer an effective tool.
But, joy of joys, our friend the 252-day moving average has risen from the ashes. It now seems to be offering gold the support it so badly needs. Here’s a one-year chart of gold with the 252-day moving average underneath. We’ve just slipped through it overnight.
The 252-day moving average, I’ve found, is more of a ‘rough guide’. It doesn’t nail the exact lows in the way that the 144 did. You can see we slipped through for a few days in late December. But, over a longer time frame, it’s acted as a good point to be dripping money back in.
Will it continue to work? My bet is that it will.
I said a few weeks back that gold looks like it wants to go back to $1,600. I thought we had seen the low last week and that we were on our way back to $1,800. It looks like I got that wrong and that $1,600 has to be visited first.
I’m not sure, as some suggest, that Bernanke is out to deliberately suppress the price of gold. But he has said before that he has the gold price on his screen and watches it every day.
Does he want the gold price to soar? Of course not. But read his work, look at the measures of inflation he uses, look at what he actually does – he is a keen proponent of monetary stimulus. As Marc Faber would say: ‘he’s a money printer’.
Gold has gone back to its one-year moving average. Every time it’s done this bar a few months in late 2008, it’s not been a reason to panic. It’s been an opportunity.
So my message to you today, in case you haven’t already got it, is sit tight, stay long, stay strong, and be patient. The bull market isn’t over.
Dominic Frisby
Gold had another one if its bad days yesterday. It fell some $30 or $40 an ounce, depending on when your day began. It fell another $13 overnight.
But now really is not the time to be panicking. If you start now, you’ll be very late to the panic party.
In fact, if you have been looking for an opportunity to increase your exposure to gold, now could be the chance you’ve been waiting for.
Gold is consolidating after its 2011 excesses
My longer-term prognosis for gold remains unchanged.
When gold has one of its big run ups, as it did in the periods to May 2006 and February 2008, afterwards, it goes though a lengthy period of consolidation. It’s trying , it’s frustrating, but that’s what it does.
Eventually it gathers impetus again, challenges the old high and, after several attempts, breaks out. The old high then becomes support. But it is many months – sometimes more than 12 – before we challenge that old high.
Gold is now in consolidation mode after its 2011 excesses. It will be many months yet before we break out to new highs. But we will. And two or three years after we do, gold will have another big run-up and sell-off and that $1,920 figure will be the line of support – just as both the $700 and $1,000 have been.
We still have colossal monetary stress, unpayable national debts, negative real interest rates and central banks that – despite yesterday’s jawboning by Federal Reserve chief Ben Bernanke – have gone beyond the point of no return on the money-printing path.
He is not printing at the moment because he doesn’t have to. US stock markets have been the stellar markets. They won’t be forever.
In the meantime, I’d like to introduce you to another moving average, one that’s worked particularly well for gold over the years. You may remember how well my 144-day moving average worked in the period from 2009 to late 2011. Well, now I’d like to tell you about the 252-day moving average.
When gold hits this line, it’s usually a good time to buy
I use the 252-day moving average because there are usually 252 trading days in year, so, in effect, it shows the average price over the last year.
Here we see gold from 2001, when the bull market began, to 2008. The red line underneath is the 252-day moving average.
You can see that throughout that seven-year period, gold repeatedly came back to it and found support there. In other words, it consistently marked an excellent entry point.
These things don’t work forever, however, and in 2008, as the world panicked (did you panic first?), gold got too far above the moving average, and then for a few sorry months in the latter part of the year, the price plunged through it.
From 2009 it hardly worked at all. Why? Because it didn’t have to.
From spring 2009 to late 2011 gold, such was its strength, never went back to its one-year average. Instead it consistently found support at the 144-day moving average – the green line on the chart below. The ‘irrelevant’ 252-day moving average is in red.
But in September last year, as we all know, gold went too far too fast.
One casualty of the subsequent wash-out has been the 144-day moving average (we are currently sitting below it). It is, for the time being, no longer an effective tool.
But, joy of joys, our friend the 252-day moving average has risen from the ashes. It now seems to be offering gold the support it so badly needs. Here’s a one-year chart of gold with the 252-day moving average underneath. We’ve just slipped through it overnight.
The 252-day moving average, I’ve found, is more of a ‘rough guide’. It doesn’t nail the exact lows in the way that the 144 did. You can see we slipped through for a few days in late December. But, over a longer time frame, it’s acted as a good point to be dripping money back in.
Will it continue to work? My bet is that it will.
I said a few weeks back that gold looks like it wants to go back to $1,600. I thought we had seen the low last week and that we were on our way back to $1,800. It looks like I got that wrong and that $1,600 has to be visited first.
I’m not sure, as some suggest, that Bernanke is out to deliberately suppress the price of gold. But he has said before that he has the gold price on his screen and watches it every day.
Does he want the gold price to soar? Of course not. But read his work, look at the measures of inflation he uses, look at what he actually does – he is a keen proponent of monetary stimulus. As Marc Faber would say: ‘he’s a money printer’.
Gold has gone back to its one-year moving average. Every time it’s done this bar a few months in late 2008, it’s not been a reason to panic. It’s been an opportunity.
So my message to you today, in case you haven’t already got it, is sit tight, stay long, stay strong, and be patient. The bull market isn’t over.
Dominic Frisby
South Carolina Acknowledges the Silver & Gold Manipulation
Silver price manipulation and gold manipulation has been alleged through out this bull market. This premise has been one of many reasons why gold and silver advocates have urged the public to accumulate precious metals.
The story begins on September 29, 2008 when the Wall St Journal reported that the CFTC would begin investigating allegations that 2 big banks had been controlling a large part of silver’s short positions-or bets that prices will decline-on the COMEX.
Since then the CFTC has issued press releases every now and then confirming that the investigation is ongoing. The CFTC has been reluctant to give a final ruling. This has only added fuel to the fire of speculation of some sort of conspiracy.
The silver manipulation story gets weirder. A London based precious metals trader by the name of Andrew Maguire became a whistle blower who revealed via an interview with GATA in April 2010 that silver manipulation does exist, confirmed JP Morgan Chase and HSBC as the main culprits and went so far as providing the SEC the algorithm used to suppress the price of silver based on the movement of gold. For three straight days his algorithm correctly and precisely tracked the price. The SEC should have had all they needed. That was the “smoking gun”. No charges were nor have been brought forth.
Andrew Maguire is quoted as saying, "JPMorgan acts as an agent for the Federal Reserve; they act to halt the rise of gold and silver against the US dollar. JPMorgan is insulated from potential losses (on their short positions) by the Fed and/or the U.S. taxpayer."
Maguire was even involved in a freak hit and run accident the day after his name was revealed at a CFTC hearing. Maguire of course believed it was an attempt on his life. It’s hard to argue especially when the authorities have refused to name the assailant and file charges against the assailant after having apprehended him and helicopter cameras watching the whole scene unfold from above!
But all this doesn’t matter anymore. Or at least it shouldn’t. While investigating the specifics on the bill advancing gold and silver as legal tender in the State of South Carolina’s website, we came across a study that was conducted by South Carolina’s State treasurer. The study was intended to provide state officials with advise on whether or not the State should invest State Pension funds in gold and silver. But what the document revealed was much more than that.
The state document acknowledged collusion between the Federal Reserve, the London Bullion Market Association, JP Morgan Chase and HSBC have engaged in artificial price suppression of gold and silver prices through massive naked short positions.
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