Monday, February 27, 2012
This week marks the second Long Term Refinancing Operation (LTRO) by the ECB, and it would appear that markets are rising in anticipation. Current expectations see a similar take up to the first LTRO of around 500 billion EUR. The first LTRO is widely credited of reversing a market decline in global financial conditions, with sovereign bond spreads having fallen steadily since. The operation provides banks with unlimited 3-year loans at 1%. Notably, Italy was able to issue 6-month debt today at yields approaching 1%.
The first LTRO coincided with a bottom for precious metals and equities. It would not be a stretch to assume that this massive monetary easing measure will leave a favorable backdrop for both. Before the first LTRO, financing conditions in Europe had deteriorated significantly, with many European banks having lost access to the interbank funding market. With the mountain of refinancing needs facing European banks now largely taken care of by the ECB, concerns over a liquidity crisis have greatly receded. With European financials awash in liquidity, the assumption is that some of these funds will overflow into precious metals.
Risk assets started the day lower, with Europeqn equities lower, and all three main U.S. equity indices indicating a 0.4% decline at the open. The headlines attributed the declines to disappointment over this weekend's G-20 meeting in Mexico. There had been hopes that the EU would get backing for an expanded IMF, but donors are currently unwilling to contribute more. There is still a widespread consensus that Europe's financial firewall is still insufficient to deal with a possible spread of the sovereign debt crisis to Italy or Spain. However, early losses have now reversed, with all three major U.S. equity indices sporting modest gains. A better than expected report on January pending home sales could also be helping.
Precious metals were mixed to lower, though gold and silver were both essentially unchanged. Spot gold prices were down $2.70 at $1,770.00 per troy ounce. Spot silver prices were up $0.04 at $35.46 per troy ounce. The gold-silver ratio continues to hover at the 50 mark, currently at 50.04. Gold and silver had been in negative territory overnight, but have recovered modestly. Platinum and Palladium remain modestly lower.
Commodities outside precious metals were mostly lower. Oil prices fell for the first time in ages, though the declines do not alter the growing concerns that high oil prices will impact the global economy. Gas prices are now averaging $3.69, up $0.15 over the last few weeks. WTI crude futures remain well above the $100 level, down $2.05 at $107.72 per barrel. Copper futures were unchanged at $3.873 per pound.
Treasuries rose despite gains in stocks, with the yield on the 10-year Teasury falling to 1.93%. The USD was broadly higher.
Zerohedge.com writes that the Riksbank is denying IMF data that shows that Sweden raised its gold reserves by 18.3 metric tons to 144 tons in January. IMF data shows that Belarus added 5 tons, Kazakhstan added 7.6 tons and Turkey added 4.1 tons.
In his annual shareholder letter, Warren Buffett slammed gold as investment. He noted that all the gold ever mined could fit in a solid cube within a baseball infield, and that beyond its decorative qualities, was a non-productive asset. Such a cube would be worth $9.6 trillion dollars. He says that investors would be better off buying shares in companies like Exxon, which would throw off dividends. Of course, Warren Buffet, the Oracle of Omaha, doesn't always get it right, saying in his letter that "he was dead wrong" on his prediction of a housing recover.
Bloomberg reports that the richest 70 members of China's legislature have a net worth of $89.8 billion. That compares to a $7.5 billion net worth for all 660 top officials in the three branches of the U.S. government.
Pending Home Sales for January rose 2.0%, above the consensus of 1.5%, and following December's upwardly revised 1.9% fall, orignally a 3.5% fall.
The Dalls Fed Manufacturing Survey for February rose to 17.8, better than the consensus estimate of 15.0, and up from January's 15.3.
Gainesville Coins is having a special on fractional American Gold Eagle Coins. Buy the 1/2 oz Gold Eagle at as low as 5.5% over spot. But the 1/4 oz Gold Eagle at as low as 7.5% over spot