mercredi 19 décembre 2007

Let's look at the Long Term



In this time of uncertainties, including for Gold, I went back to a graph of the Dow/Gold that I had found a year ago. At the time the ratio was at about 20 and it is now 16.


We can notice two things : one, we are still in this trend which has been validated several times; two, the ratio could very well break its support at any time, given the bell curve shape of this graph.

Or it could go back to 18.


I would opt for the former, for two reasons : the Dow is going nowhere even if it might rally in the short term and Gold still possess huge momentum.


It is especially striking when we look at the monthly chart below considering the fact that the month of December is not even finished.
I think it is possible that we might end the year on a new high for Gold, even if it's getting late and that no bad news seem on the horizon

Let's look at the long term...



In this time of uncertainties, including for Gold, I went back to a graph of the Dow/Gold that I had found a year ago. At the time the ratio was at about 20 and it is now 16.


We can notice two things : one, we are still in this trend which has been validated several times; two, the ratio could very well break its support at any time, given the bell curve shape of this graph.

Or it could go back to 18.


I would opt for the former, for two reasons : the Dow is going nowhere even if it might rally in the short term and Gold still possess huge momentum.


It is especially striking when we look at the monthly chart below considering the fact that the month of December is not even finished.
I think it is possible that we might end the year on a new high for Gold, even if it's getting late and that no bad news seem on the horizon

mardi 18 décembre 2007

Concernant la hausse actuelle de l'or

La hausse actuelle de l'or (je veux dire aujourd'hui) se fait sur fond de EUR/USD quasi stable, ce qui est une nouveauté récente.

Si cela se confirme cela signifierait que l'or prendrait son envol non pas comme actif "anti-dollar" mais comme un actif financier à part entière.

Cela est particulièrement notable contre l'Euro qui est la devise la moins dévaluée dans le monde.

Le Gold en euros à l'instant T est de 559
Si il passe les 570 on aura un nouveau plus haut.

Et n'oubliez pas que c'est le prix de l'or en euros qui compte pour Euro Ressources

Je suis investisseur de Long Terme sur EUR mais à mon humble avis il y a un bon coup à jouer d'ici la fin de la semaine.

Il ne reste plus beaucoup de temps pour en profiter.
De plus les risques à la baisse au cours actuel sont très limités.
Si il y a des faiblesses à très court terme elles seront très temporaires.

Stagflation is it ?

Today, the term "Stagflation" is finally in the news after being discussed so many times in Gold Bugs' circles. Just because Greenspan has decided to use it yesterday in one of his speeches (one more... this is getting annoying).
I am really surprised that he is still receiving so much attention.

Apparently he hasn't been totally discredited yet.
But this guy might well be a contrarian indicator that might be worth considering. But what would it mean ?

In any case, this is not news, as I said. We have been discussing this for a long time.
Now we have to look forward and try to prepare for what's next.

One of my best sources

Zeall is becoming one of my best sources of analysis.
When I look back to last August, I observe that their timing of the gold market has been very good.

And I also like the way they use correlations to justify their investments.
In particular their observation of the correlation between Gold and Oil has been very influential for me.

And they have a large amount of archive that we can use, and they go back to 2000

Correlation seems the most scientific method and the most successful over the long run.
I still believe in Technical analysis but this is proving ever more difficult to get it right, especially for the short term.
Probably because Psychology gets in the way.

jeudi 13 décembre 2007

December update

This blog is turning into a monthly publication.
It was not my intent and I am going to try at least to make it a weekly event.

At the same time it is a way to reflect on a longer period and to avoid being caught up in the daily action that tends to confuse us.

So what's going on ?

Fed cut 25 bps on both fed rates and the discount window on dec 11th.
But Market was disappointed and plunged on that same day
Let's assume that it is because some hoped for 50 at least for the discount window (but you never know the exact cause. 2 weeks before 25bps was supposed to be a good news, but it was co anticipated, and a "surprise" 50 bps was so hoped for that here's a correction.

But next day, Fed announces new injection of liquidity along with the ECB and other Central Banks, to help avoid a Credit Crunch that tends to become a recurrent news, and the market "kind of" rallies.

Of course the Fed says his action had nothing to do with the market's reaction of the day before. Right ?

Gold followed the stock market during these two days. Fell on the 11th, rallied on the 12th.

But Gold is still a small footnote in all these events.

Sentiment in the stock market (and the economy at large) is all that counts in the US right now.
The establishment is doing all it can to avoid a panic that would have disastrous effects (think Wall Street 1929 or Japan 1988).

Of course inflation is much less severe in their mind, but they won't say so.
They continue to say that inflation is a continuing worry.

But you cannot fight both inflation and recession at the same time.
And when you choose not to choose you put the economy in an intractable situation.
It's called Stagflation. I remember that from my History classes.

For Gold it is going to be perfect until they decide to really raise interest rates in the face of a weak economy.

But we are very far from there now.

mardi 13 novembre 2007

Vive les baissiers sur l'or !

Je les trouve excellent tous ces baissiers sur le forum Gold : ils sont un indicateur super haussier d'un point de vue contrarien (qui est très efficace, vérifiez)

Pour ma part je reste vraiment très "Zen" en ce moment avec mes positions sur l'or et je ne suis pas près de vendre.
J'ai déjà vécu la hausse de 2005 qui a culminé en Mai 2006 par une forte chute puis la longue consolidation. (cf mes posts depuis 2005). Mais la patience a été récompensée cet été avec une explosion spectaculaire qui a reconfirmé la tendance et a même commencé à attirer un peu plus l'intérêt des investisseurs particuliers.
Il ne faut pas négliger cette explosion des résistances qui a eu lieu.

Et surtout, si l'on m'avait dit au mois de juillet que le cours de l'or serait à 800$ en novembre, j'aurais signé des deux mains tellement la consolidation de 2006-2007 a été longue et difficile.

La baisse brutale que nous avons vécu hier n'est qu'un épisode de plus dans un marché haussier de l'or SECULIER.
Nous en avons encore pour au moins pour 5 ans de hausse à mon humble avis. Nous ne sommes qu'à mi-parcours dans cette hausse.

Sur le court terme, je ne sais pas combien de temps va durer la correction mais je rappelle quand même à titre d'exemple que le 20 avril 2006 il y a une chute aussi brutale de plus de 4% à 611 qui a été suivie par une hausse de 15% au cours du mois suivant.

Bon, évidemment, si vous êtes Court-Termiste, ou Day Traders, désolé pour vous, vous êtes arrivé un peu tard et vous allez (peut-être) souffrir quelque temps. Il faut savoir que l'or est un placement sûr à long terme mais volatil à court terme.

Pour vous refaire je vous conseille les valeurs aurifères qui ont énormément de retard à rattraper sur le cours de l'or : elles sont très loin d'être surévaluée ou surachetée, en particulier les petites sociétés.

En France il y a Auplata et Euro Ressources qui sont toutes les deux attractives parcequ'elles sont sous-valorisées. parcequ'elles ont un fort effet de levier sur l'or, et qu'en plus elles sont éligibles au PEA.

Aujourd'hui, personne n'a envie de s'y risquer (comme sur beaucoup de Small Cap) et elles n'ont quasiment pas suivie le dernier mouvement haussier de l'or. Mais la situation est tout près de changer et le rattrapage sera violent.

Il faut rappeler que les actions du secteur aurifère sont corrélées avec le cours de l'or et non avec les marchés actions. A court terme elle peuvent donner l'impression inverse, mais c'est une impression trompeuse. (cela est vérifié statistiquement sur de longues périodes historiques)

Personnellement, je suis positionné sur les deux (ainsi que d'autres étrangères) mais avec une prédilection cependant pour Euro Ressources (EUR), parcequ'elle a un historique plus long, et donc des risques mieux identifiés et une meilleure prédictabilité de ses futurs résultats, pour peu que l'on se penche sur ses comptes. Et surtout elle a subit une consolidation longue qui lui donne une valorisation attractive. Sans compter que graphiquement elle est un cas d'école.
Profitez de la dernière consolidation pour acheter.

Auplata est mieux valorisée et donc un peu moins attractive.

Pour un faible pourcentage il y a aussi l'Or physique, mais 7% de taxes à l'achat en France ça fait beaucoup je trouve

Autre idée : les pièces d'Argent (mais ça fait du volume...)

Et si l'on veut jouer les devises, le Yen.(contre USD et contre EUR)

Cela va sans dire qu'à quelques exceptions près je ne vois rien de bon sur les marchés actions : au mieux une faible hausse, et au pire ...

Si ce post vous a plu, je développerai l'argumentaire sur l'or avec les évolutions récentes.(Subprime, Yen Carry Trade, Credit Crunch et politique monétaire)

Merci pour votre attention.

jeudi 8 novembre 2007

High Up there



















Record highs are getting broken everyday with the Gold price.
Yesterday's high was 845. Today's latest price is 838.

Journalists and market participants are wondering : is it going to last ? or how far will it go ?

In the short term, I don't know : markets are so unpredictable.
I know that for sure. As I know now that it is not necessary to predict the future in order to make money.

In the longer term, I am pretty confident that Gold will go higher, just because of its correlation with Oil ,and its inverse correlation with the Dollar and the Stock market.

Two or three years from now, Gold will probably be higher, and that's all that count for my little investment, because this is when my Gold Royalties will probably reap the biggest reward.

I would prefer if it happened earlier because I need a validation of my strategy before the end of the year. But this is irrelevant to the bigger picture.

Right now, I am excited by the rise of the gold and frustrated at the same time because my investment has not followed as much.

vendredi 2 novembre 2007

Que cache la crainte du "credit crunch" ?

Je pense que la plus grosse crainte qui a provoqué la baisse hier c'est celle du "Credit Crunch". Apparemment la crise du sub.prime est en train de s'étendre à d'autres tranches obligataires mieux notées (même des Triple A) et fragilise énormément tout le système bancaire et sa capacité à financer l'économie.


En réalité c'est bien peut-être pire que l'inflation (c'est en tout cas ce que pensent les économistes US en charge, et H.elicopter Ben, en tête)


Vue la politique monétaire US : tout risque perçu de credit crunch, se transformera tôt ou tard en injection de liquidité et/ou de réduction des taux, et donc bien évidemment en inflation.


On est entré dans une spirale infernale au niveau monétaire.


La prochaine étape c'est la stagflation : c'est à dire que l'activité économique se ralentit inexorablement alors que l'inflation continue d'augmenter.


Depuis 20 ans on avait réussit à éviter cette combinaison "vicieuse" à force de politique monétaire "rigoureuse" : rappelez-vous les décisions de Paul Volcker à la Fed et en France le tournant de la rigueur en 1983 et du franc fort sous l’égide de Pierre B.érégovoy.


Toutes ces décisions impopulaires à priori sont finalement venues à bout de l’inflation.

Mais avec le temps, le consensus s’est effrité, particulièrement en France, car en Allemagne la lutte contre l’inflation est quasiment synonyme de démocratie car l’est l’hyperinflation qui a amené H.itler au pouvoir dans les années 30.


Aux Etats-Unis, le problème est encore différent et ce pays comme la France est tenté par une politique monétaire laxiste.


Mais il l’est d’autant plus qu’il détient la monnaie de réserve du monde entier et peut donc facilement exporter ses problèmes chez les autres.


Cependant, à force de tirer sur la corde, tout cela va se retourner contre eux.

L’économie américaine n’est plus aussi prépondérante, et le monde pourrait très bien se passer du dollar comme monnaie d’échange.


Surtout, puisque le problème est aussi politique, les Etats-Unis sont aujourd’hui très contestés à cause de leur interventionnisme forcené.

Si ils s’attaquent à l’Iran, ce sera le coup de trop et je n’ose en imaginer les conséquences au Moyen-Orient, mais surtout pour l’économie américaine et le dollar.

mercredi 31 octobre 2007

A summary of the last 6 weeks

Yes, I haven't written in this blog for 6 weeks.
The paradox is that these have been pretty exciting weeks for Gold.
(maybe that's why I forgot to write)

Anyway I promise to write more regularly from now on.

And Today I will make a short summary of these last 6 weeks.

On the 11th of September, one ounce of gold was worth 713, and it is now 780.
What produced such a rise ?

Actually the current rise started in Mid August and accelerated starting on the 4th of september to break the previous high on the 6th september. But it's only after the 16th that it broke the May 2006 high.

In August the Subprime crisis started to unfold but it did not help the Gold price right away and it was initially very frustrating to watch as I wrote on the 29th of August

What really fuelled the Gold rally was the realization that the Federal Reserve was ready to use desperate measures to solve the crisis when it decided a 50 points rate cut on September 18th. The Stock Market soared after that day but it also showed that the Fed did not care about the weakness of the dollar and that capping the Gold price was the last thing on their mind. It showed the Gold market participant how serious the situation was, and it triggered an additional short squeeze which was already in the making.

In retrospect you would think that this strong move was obvious from the beginning, but it was not. All along this rally, I was skeptical because there had been too many disappointments before.

Even now I think most Gold Bugs are worried about an impending correction.
But this Bull market has proved its worth and all the analysis from the best gold bugs analysts that I read have been vindicated.

But my worries probably also stem from the fact that my gold stocks positions haven't been profitable yet.
Actually the Gold stocks in general still lag physical gold.

And the risk remains of a general asset price deflation that would take Gold with it, just like it did in May 2006.

But now we might consider that May 2006 as an historic anomaly.
It was a costly "anomaly" for me (and we should always prepare for this and be ready to cut our losses), but it maybe was just an anomaly.

Stocks and Gold are just not correlated historically and so we might be going back to normal now.

Which should help me solve one of the questions that still occupy my mind. Is the Stock Market going to soar from November to April , and should I take advantage of it ?
If Gold continues to rise, and the historical inverse correlation holds, then it is going to be ugly for stocks in spite of the favourable seasonality (Buy in November, Sell in May). The seasonality can be wrong sometimes. Last time it was
The Stocks Bears might be finally proven right, after being wrong so many times.

So I should probably not buy stocks (even Tech which is back in fashion), or only in a very limited way.
Beside, it is going to increase my risks unnecessarily.

If the stock market rises, along with Gold, I will profit from it though my gold stocks anyway, so I don't need to add other risks.

It is not going to diversify my portfolio but only increase my risks.
I know better now.

A summary of the last 6 weeks

Yes, I haven't written in this blog for 6 weeks.
The paradox is that these have been pretty exciting weeks for Gold.
(maybe that's why I forgot to write)

Anyway I promise to write more regularly from now on.

And Today I will make a short summary of these last 6 weeks.

On the 11th of September, one ounce of gold was worth 713, and it is now 780.
What produced such a rise ?

Actually the current rise started in Mid August and accelerated starting on the 4th of september to break the previous high on the 6th september. But it's only after the 16th that it broke the May 2006 high.

In August the Subprime crisis started to unfold but it did not help the Gold price right away and it was initially very frustrating to watch as I wrote on the 29th of August

What really fuelled the Gold rally was the realization that the Federal Reserve was ready to use desperate measures to solve the crisis when it decided a 50 points rate cut on September 18th. The Stock Market soared after that day but it also showed that the Fed did not care about the weakness of the dollar and that capping the Gold price was the last thing on their mind. It showed the Gold market participant how serious the situation was, and it triggered an additional short squeeze which was already in the making.

In retrospect you would think that this strong move was obvious from the beginning, but it was not. All along this rally, I was skeptical because there had been too many disappointments before.

Even now I think most Gold Bugs are worried about an impending correction.
But this Bull market has proved its worth and all the analysis from the best gold bugs analysts that I read have been vindicated.

But my worries probably also stem from the fact that my gold stocks positions haven't been profitable yet.
Actually the Gold stocks in general still lag physical gold.

And the risk remains of a general asset price deflation that would take Gold with it, just like it did in May 2006.

But now we might consider that May 2006 as an historic anomaly.
It was a costly "anomaly" for me (and we should always prepare for this and be ready to cut our losses), but it maybe was just an anomaly.

Stocks and Gold are just not correlated historically and so we might be going back to normal now.

Which should help me solve one of the questions that still occupy my mind. Is the Stock Market going to soar from November to April , and should I take advantage of it ?
If Gold continues to rise, and the historical inverse correlation holds, then it is going to be ugly for stocks in spite of the favourable seasonality (Buy in November, Sell in May). The seasonality can be wrong sometimes. Last time it was
The Stocks Bears might be finally proven right, after being wrong so many times.

So I should probably not buy stocks (even Tech which is back in fashion), or only in a very limited way.
Beside, it is going to increase my risks unnecessarily.

If the stock market rises, along with Gold, I will profit from it though my gold stocks anyway, so I don't need to add other risks.

It is not going to diversify my portfolio but only increase my risks.
I know better now.

jeudi 25 octobre 2007

A propos de la relation Or / Dollar

Historiquement, l’Or et le Dollar US sont inversement corrélés.


Mais quand on parle du dollar, il ne s'agit pas d'une paire particulière mais du cours moyen pondéré de cette devise. (Contre Euro, Yen, British Pound, Swiss Franc, etc...)


C'est pourquoi la corrélation n'est pas parfaite entre l’Or et l'EUR/USD, bien que l'Euro soit la monnaie la plus importante après le dollar, parce que cela dépend également du Yen et du Yuan entre autres (mais surtout ces deux là).


C'est là où on en vient à l'hypothèse intéressante d'un débouclage du Yen Carry Trade et/ou d'une réévaluation du Yuan chinois (ces deux devises sont très liées du fait de l'importance du commerce Japon/Chine).


En effet le Yen Carry Trade a été la pompe à liquidités de l'économie mondiale depuis des années. Et le Yuan chinois sous-évalué a alimenté le moteur de son économie marchant à plein régime.


En cas de ralentissement ou renversement de ces deux tendances, le Dollar sera forcément impacté à la baisse.


C'est ce que souhaitent et proclament bruyamment les autorités américaines par protectionnisme et surtout pour soutenir leur économie qui bat de l'aile. (Ils ont aussi utilisé les histoires de produits défectueux chinois dans le même but). Ils ont reçu aussi lors du dernier G7 le soutien des européens dans cette nouvelle "guerre", aux conséquences hasardeuses (ça ne vous rappelle pas quelque chose ?)


Seulement en agissant ainsi, ils jouent clairement avec le feu.

Car les conséquences pour le dollar pourraient s'avérer plus graves que par le passé.

Le dollar pourrait tout simplement perdre son statut de monnaie de réserve, en faveur de l'Euro mais surtout de l'Or qui a un important retard à rattraper car il constitue une très faible proportion des réserves des Banques centrales des pays émergents.


D’ailleurs on constate que l’Or monte dans toutes les devises, que ce soit l’Euro, le Yen, la Roupie indienne ou le Yuan chinois.


Il s’agit donc bien d’une tendance séculaire et non d’une simple tendance inverse à celle du dollar

Mais par leur politique monétaire à visée électorale (les élections sont pour bientôt) les autorités américaines ne pourrot s'empêcher d'accélérer le mouvement).


Une minorité d'américains semblent prendre conscience de la dévalorisation de sa monnaie et s'en inquiète (et investit dans l'or ou place son argent dans des monnaie forte) mais il s'agit d'une minorité ou disons le, une élite, car le reste des résidents ne sortent pas de leur pays.


Le reste s'inquiète surtout du renchérissement du pétrole (ce qui en fait revient à peu près au même).

Mais tant que l'économie va, tout va n'est-ce pas ? Et tant que la bourse monte pourquoi s'en inquiéter ?


Le problème c'est que cela ressemble de plus en plus à un scénario de type Stagflation qui se profile : ralentissement économique sur fond de poussée inflationniste. Un scenario dont nous ne vivons pour l'instant que les préliminaires. Lorsque les anticipations inflationnistes seront durablement ancrées, il sera difficile de les arrêter, malgré les discours de fermeté des banques centrales qui nous sera servi tôt ou tard.


Comme souvent cela ne restera que des discours...

lundi 15 octobre 2007

Pourquoi l'Or monte ?

Beaucoup de gens se posent cette question actuellement.
Quant à moi, je me pose cette question surtout parceque je veux savoir jusqu'à quand durera cette hausse
Je me fais donc régulièrement une liste des Pros et des Contre la hausse de l'or

Mais pour résumer, je dirais qu'il y a beaucoup de (très) bonnes raisons à cette hausse et c'est pourquoi elle est faite pour durer.

Première raison : (à court terme) la saisonalité :
C'est la saison des mariages en Inde et des festivals tels que Diwali entre autres qui font l'objet de gros cadeaux en bijoux en or pour les mariées, car la joaillerie est plus que décorative dans ce pays, c'est aussi une épargne. C'est aussi la saison de la préparation des fêtes de fin d'année pour les joailliers en Occident. Cette saisonalité a été vérifiée maintes fois et se traduit par une hausse de l’or en moyenne entre mi-octobre (tiens, tiens…) et fin février.

Deuxième raison : (à moyen terme) la raison monétaire : Depuis l'an 2000, les banques centrales ont répondu à toutes les crises en ouvrant les vannes du crédit bon marché et en baissant les taux. Dernier épisode en date : la baisse d'un demi-point de la FED
A chaque fois, tous les actifs ont augmenté : Immobiliers, Actions, Obligations, Matières Premières. Ce phénomène a un autre nom : Inflation.
Le problème c'est que plus ces baisses de taux se multiplient et moins la confiance "réelle" augmente.
Les économistes de l'establishment ont réussi à passer ce sujet sous silence jusqu'à maintenant au moyen de statistiques déformées et de désinformation. Rien de plus facile sur un sujet ardu comme la politique monétaire.
Mais les anticipations inflationistes augmentent, car tout le monde commence à prendre conscience de cette hausse des prix, sans véritable création de valeur.

Troisième raison (Long terme): c'est la baisse du dollar : L'or est inversement corrélé avec le dollar. Donc l'affaiblissement du billet vert signifie la hausse de l'or.
Mais cette dernière raison à mon avis n'est qu'un symptome de plus et non la raison fondamentale comme le prétendent certains : D'ailleurs l'Or augmente dans toutes les devises : Euros, Yen, Yuan, Roupie, et Pesos de toutes origines. La banque centrale Japonaise a d’ailleurs une très grande part de responsabilité en favorisant le Yen Carry Trade (Emprunt de Yens à très bas coût pour les placer dans d’autres actifs plus rémunérateurs et plus spéculatifs)
Peut-être que le dollar est tout particulièrement touché parcequ’il est la monnaie papier par excellence et qu’il est adossé à une puissance déclinante et très fortement endettée (les Etats-Unis)


Quatrième raison (Très Long Terme) : La corrélation de l’or avec le cours du pétrole. Il s'agit d'une corrélation SECULAIRE. Et l'on peut vérifier qu'elle est toujours valable même si le cours de l'Or a pris du retard. C'est une raison d'autant plus forte pour une hausse de l'or.

En résumé, la monnaie papier (y compris sous forme électronique) s'accumule de plus en plus avec toujours plus de zéros derrières quelque soit son nom et sa dénomination.
Mais les objets tangibles eux sont toujours aussi difficiles à extraire, cultiver et faire pousser. C'est la revanche des matières premières et le Roi des matières premières c'est l'Or.
On remarquera d'ailleurs qu'il a pris son temps et pris du retard par rapport à ses plus modestes précurseurs (Plomb, Nickel, Cuivre...). Ce n'est donc que le début de sa hausse séculaire.

Si l’on y réfléchit bien toutes ces raisons sont étroitement liées et se rejoigne. Un phénomène aussi complexe qu’un marché n’a jamais une seule cause.

Il faudrait aussi y rajouter la psychologie des foules et le risque géopolitique, mais cela fera peut-être l’objet d’un autre post

jeudi 4 octobre 2007

Une sincère pensée pour...

Une sincère pensée pour les pauvres mineurs qui se sont retrouvés coincés dans cette mine d'or d'Harmony Gold en Afrique du Sud (aux dernières nouvelles ils sont sauvés)

Je n'ai pas l'habitude de mélanger la bourse et les sentiments, mais pourtant je trouve qu'il est important d'attirer l'attention sur les conditions de vie des mineurs à l'heure où de nombreuses matières premières flambent en Bourse.

Et pour moi il n'y a pas de contradiction à investir dans l'or et s'inquiéter des conditions de vie des mineurs, bien au contraire.

L'industrie minière aurifère en particulier a été délaissée pendant des décennies et technologiquement elle a pris du retard.

Evidemment ce sont les mineurs qui sont les premiers à en payer les conséquences et en compensation ils n'ont que des salaires dérisoires, à cause des séquelles de plusieurs années de faible rentabilité des mines.

La baisse de l'or jusqu'en 2001 est en partie responsable de cet état de fait.

Objectivement, l'or est encore sous-valorisé. Et j'espère pour les mineurs comme pour les investisseurs raisonnables dans l'or qu'il atteindra sa "vraie" valeur.

On pourrait aussi parler de règlementation et de lois sociales, mais c'est un autre débat. Pour ma part je pense qu'une meilleure gouvernance est souhaitable dans certains de ces pays, dans l'intérêt des citoyens comme des investisseurs. Un investissement non-éthique est toujours perdant à moyen terme.

Qu'en pensez-vous ?

mardi 11 septembre 2007

Gold and Terror

Today is the 6th anniversary of the 9/11 terrorist acts in 2001. So it might seem an appropriate date to discuss the relationship between the price of Gold and geopolitical risks.

In general I tend to favor the liquidity factor as an explanation for high gold prices, as well as the link with the oil price, but ironically last week took place the most spectacular rise in the price of gold that I have witnessed since 2006.
Was it related to the anniversary of 9/11.

My first instinct was to relate it to the weakness of stock markets (with some lag), the crisis of liquidity and the particularly weak jobs statistics in the US on Friday.
But many see a relationship with geopolitical risk, and from there you might even create whole conspiracy theories about the price of Gold and the manipulation of the market by the central banks.

I think it is fun, and partly true in the short run. But in the long run, the gold price is dependent on more fundamental factors.

mercredi 5 septembre 2007

When "Peak Gold" joins Peak Oil

A very interesting posting in today's "Seeking Alpha", here

It seems to me that it's a very valid argument in favor of Gold.

Tangible things (and Gold is the ultimate tangible asset ) get more and more difficult to find and extract, whereas intangibles (money, credit and even technology) are commoditized.

The miners, the farmers and maybe even the industrial workers of the world might get some advantages after all.

In the long run, technology is going to be redirected toward real and tangible things, that used to be all important before the dot com revolution.

I remember for example that when we studied Geography (along with History) in High School, we used to examine the natural ressources of a country, along with its climate and lanscapes.

And we could how greatly it determined its economy and even history.

Interesting...

"Those concerned about the worst-case scenario recalled that large put contracts were placed on airline stocks, notably American, a unit of AMR and United Airlines, in the weeks leading up to the Sept. 11, 2001 terror attacks. "
This is an extract of this article

Tant de détracteurs de l'or

Tant de détracteurs de l'or, je trouve ça très bien !
Si tout le monde parlait d'acheter de l'Or, y compris les concierges et les chauffeurs de taxi, je commencerais à vendre.

Mais c'est encore l'immobilier qui est le sujet de conversation favori
(eh oui il y a encore une majorité de gens qui pensent que c'est un bon achat)

Moi ça me convient très bien d'avoir l'air farfelu avec mon or.
On en reparlera dans quelque temps.

mercredi 29 août 2007

This Summer of 2007

Today, I am writing in the train, going back to Paris, and I take the time to reflect on this summer. At the beginning of July I expected and also hoped for a kind of crisis. In a way, I was afraid that nothing would happen. Well, I can say that I was not disappointed by the extent of the financial crisis that happened this summer, but the consequences for the Gold price have been disappointing so far. In truth, I am not surprised anymore, by this kind of counter-intuitive moves, especially since May 2006 when I exited the stock market at the best moment, but reinvested everything in a Gold stock and erased more than half of my substantial gains of the first 4 months of 2006. I exited this stock and avoided the worst,but subsequently, I erased all my gains by trying to exploit the sell off, and misinterpreting and failing to take advantage of the volatility of that Spring-Summer 2006. This is when I started to read everything about Gold and got really interested. Actually I had started to get interested in late 2005, early 2006, but was not so much comitted. I guess the lesson is still the same : read everything BEFORE investing. Anyhow, I decided to invest again in this gold stock in september when I observed that it had found some support and might be recovering. Two or three months later, it went up spectacularly, and I was vindicated. I had recovered a big part of my maximum gains for 2006. But I wanted more after everything that I had suffered, and the time I had spent on this case (another common mistake). So I did not materialize these gains and later the stock started to fall. But I still believe in this stock and especially since its value depends on the Gold price. My guts told me that all this suffering would pay in the end. And in the mean time, I could learn a lot about finance, history, politics and market psychology. It is very similar to what I experienced with a Silicon wafer manufacturer whose stock I bought in April-May 2002. (this particular timing was because I thought that the worst of the dot com bubble popping was over). When the stock started to fall, I did not want to sell, and I started to read everything about the technology and its market. Two years and 8 months later it finally paid, but I did not really took advantage of the whole increase. In truth, I could have made a lot more money if I had stuck to this stock longer. This is probably why I decided to stay longer with this gold stock this time, in spite of the risks. Sometimes, I have doubts about this strategy because it is incredibly risky to invest so much of your own money in only one small company. But now I know its business pretty well and I also know how it moves compared to the gold price. And I also have studied the evolution of the Gold price as well. To summarize my analysis, I am quite confident in the potential of Gold in the long term, for several reasons that I will expose later, but I am even more confident that at some time in the medium term (say, less than six months) it is going to spike higher and I will use this opportunity to cash substantial gains. At least I will start selling and reducing my “Value at risk”, and start breathing more normally. It might not make an enormous annual return (if I count 2 years of activity since the beginning of 2006) but it will be positive.

This Summer of 2007

Today, I am writing in the train, going back to Paris, and I take the time to reflect on this summer.

At the beginning of July I expected and also hoped for a kind of crisis.
In a way, I was afraid that nothing would happen.
Well, I can say that I was not disappointed by the extent of the financial crisis that happened this summer, but the consequences for the Gold price have been disappointing so far.

In truth, I am not surprised anymore, by this kind of counter-intuitive moves, especially since May 2006 when I exited the stock market at the best moment, but reinvested everything in a Gold stock and erased more than half of my substantial gains of the first 4 months of 2006.
I exited this stock and avoided the worst,but subsequently, I erased all my gains by trying to exploit the sell off, and misinterpreting and failing to take advantage of the volatility of that Spring-Summer 2006.

This is when I started to read everything about Gold and got really interested.
Actually I had started to get interested in late 2005, early 2006, but was not so much comitted. I guess the lesson is still the same : read everything BEFORE investing.

Anyhow, I decided to invest again in this gold stock in september when I observed that it had found some support and might be recovering.
Two or three months later, it went up spectacularly, and I was vindicated.
I had recovered a big part of my maximum gains for 2006.
But I wanted more after everything that I had suffered, and the time I had spent on this case (another common mistake). So I did not materialize these gains and later the stock started to fall.

But I still believe in this stock and especially since its value depends on the Gold price.
My guts told me that all this suffering would pay in the end. And in the mean time, I could learn a lot about finance, history, politics and market psychology.
It is very similar to what I experienced with a Silicon wafer manufacturer whose stock I bought in April-May 2002. (this particular timing was because I thought that the worst of the dot com bubble popping was over). When the stock started to fall, I did not want to sell, and I started to read everything about the technology and its market. Two years and 8 months later it finally paid, but I did not really took advantage of the whole increase. In truth, I could have made a lot more money if I had stuck to this stock longer.
This is probably why I decided to stay longer with this gold stock this time, in spite of the risks.

Sometimes, I have doubts about this strategy because it is incredibly risky to invest so much of your own money in only one small company.
But now I know its business pretty well and I also know how it moves compared to the gold price. And I also have studied the evolution of the Gold price as well.

To summarize my analysis, I am quite confident in the potential of Gold in the long term, for several reasons that I will expose later, but I am even more confident that at some time in the medium term (say, less than six months) it is going to spike higher and I will use this opportunity to cash substantial gains. At least I will start selling and reducing my “Value at risk”, and start breathing more normally.
It might not make an enormous annual return (if I count 2 years of activity since the beginning of 2006) but it will be positive.

L'Or et L'inflation

La valeur de l’or, en termes de biens et services réels qu'il peut acheter, est demeurée en grande partie stable pendant de nombreuses années. En 1900, le prix de l'or était de 20,67 US$/oz, ce qui équivaut environ à 503 US$/oz au prix d'aujourd'hui. Sur deux années se terminant fin décembre 2006, le prix réel de l'or avoisinait 524 $. Ainsi le prix réel de l'or n’a que très peu changé sur un siècle caractérisé par des changements brusques et des chocs géopolitiques à répétition. En revanche, le pouvoir d'achat de nombreuses devises a en général diminué.

Currencies in terms of Gold (Index 1900 = 100)

En grand >>

Les investisseurs dans l’or peuvent compter sur une recherche en plein développement qui soutient la réputation de l’or comme protecteur de fortune contre les ravages de l'inflation. Les cycles du marché vont et viennent, mais la recherche étendue d'un panel d’économistes a démontré que, sur le long terme, à travers des périodes inflationnistes et déflationnistes, l'or a uniformément maintenu son pouvoir d'achat.

À court terme, l'expérience a montré que l'or peut dévier de sa tendance de long terme comme couverture de l’inflation, et quand jouissant d’une période faste soutenue, comme c’est le cas actuellement, il offre des opportunités pour un retour impressionnant.

samedi 18 août 2007

Gordon Gekko's famous quotes


Je viens de revoir "Wall Street" (Oliver Stone, 1987) récemment, et décidément, tout y est, cela n'a pas pris une ride. Toute la crise actuelle peut se comprendre à l'aune de ce film.
Première leçon aux boursicoteurs : ne soyez pas naifs : ce sont ces gens là contre qui vous combattez...


Voici quelques unes des citations les plus savoureuses (en version originale) :


* "It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another."

* "This painting here, I bought it 10 years ago for $60,000, I can sell it today for 600 [$600,000]; the illusion, has become real, and the more real it becomes, the more desperate they want it—capitalism at its finest."

* "Lunch is for wimps."

* "Money never sleeps, pal."

* "Read Sun-tzu, The Art of War. Every battle is won before it is ever fought."

* "It's all about the bucks, kid. The rest is conversation."

* "And if you need a friend, get a dog."

* "And I'm not talking about some $400,000 dollar a year, working Wall Street stiff, flying first-class, being comfortable, I'm talking about liquid. Rich enough to have your own jet, rich enough not to waste time. Fifty, 100 million dollars, buddy. A player...or nothing."

* "That's the thing about WASPs: they love animals, can't stand people."

* "Just got on the board at the Bronx Zoo, cost me a mil."

* "The richest one percent of this country owns half our country's wealth, $5 trillion. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's bullshit. You got 90 percent of the American public out there with little or no net worth. I create nothing. I own."

* "We make the rules, pal. The news, war, peace, famine, upheaval, the price of a paper clip. We pick that rabbit out of a hat while everybody sits around wondering how the hell we did it. Now you’re not naïve enough to think that we’re living in a democracy, are you, buddy? It’s the free market, and you’re part of it."

* "Ever wonder why fund managers can't beat the S&P 500? Because they're sheep, and sheep get slaughtered"

* "The public's out there throwing darts at a board, kid, I don't throw darts at a board; I bet on sure things."

* "You and I are the same, Darian. We are smart enough not to buy into the oldest myth running: love. A fiction created by people to keep them from jumping out of windows."

* "Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms, greed for life, for money, for love, knowledge has marked the upward surge of mankind."

* "First lesson in business: Don't get emotional about a stock."

samedi 11 août 2007

Crise Financière pas de panique !

Charles Wyplosz analyse ainsi la crise actuelle dans l'article ci-dessous.

Il va sans dire que je ne suis pas tout à fait d'accord avec lui... (j'expliquerai pourquoi à la suite de l'article).

Jeudi et Vendredi, les grandes banques centrales (Europe, Etats-Unis, Japon) ont injecté des milliards d’euro de liquidité dans le marché monétaire. Qu’est-ce que cela veut-dire? Sommes-nous au bord d’une crise financière de première grandeur, qui risque de plonger le monde dans la tourmente? Très probablement pas.

Depuis quelques mois, la grande correction du marché de l’immobilier américain est en cours. Dans l’euphorie d’une croissance qui aura duré 10 ans, les établissements financiers américains ont consenti des prêts immobiliers à des clients qui, d’habitude, sont considérés comme des "mauvais risques". Le prix des maisons s’est envolé au-delà du raisonnable alors que des milliers de ménage, ravis de pouvoir emprunter, s’engouffraient dans des achats qui, espéraient-ils, allaient les rendre riches.

Oui, mais voilà: quand les prix montent trop haut, ils doivent redescendre un jour. Et quand ils redescendent, ou même cessent de grimper, les ménages trop endettés et déçus de voir la bonne affaire s’évaporer, cessent de rembourser. Les établissements prêteurs saisissent les biens immobiliers pour les vendre aux enchères, ce qui pousse les prix à la baisse et enclenche une nouvelle vague de défauts de paiements. Et la roue tourne.
A chaque tour, les établissements prêteurs ne récupèrent qu’une partie de ce qu’ils ont prêté.

La normalisation tant attendue du marché de l’immobilier se devait de faire quelques dégâts. Quelques établissements spécialisés dans les prêts hypothécaires ont fait faillite, d’autres suivront. C’est normal et ce n’est pas vraiment grave. Même si les sommes en jeu sont considérables, ce n’est qu’une goutte d’eau dans l’océan des marchés d’aujourd’hui. Le problème est ailleurs.

Du marché de l' immobilier au marché monétaire

Les établissements prêteurs savaient bien qu’ils prenaient des risques. Ils ont donc cédé leurs portefeuilles de prêts risqués à d’autres établissements financiers, qui les ont repassés à des collègues, qui ont fait de même encore et encore. Quand John Smith ne rembourse plus son prêt hypothécaire, c’est une banque française, japonaise ou australienne qui engrange une perte. Du coup, on ne sait plus qui aujourd’hui détient les créances sur les emprunteurs américains déçus. Des centaines d’établissements ont absorbé ces dettes, qui paraissaient bien juteuses mais sont aujourd’hui impayées.

Du coup, la scène se déplace sur le marché monétaire. C’est un gros marché qui rassemble les très gros professionnels de la finance, grandes banques et sociétés d’assurance. Ces pros se prêtent chaque jour les uns les autres de très grosses sommes. Ils le font d’ordinaire sans se poser de questions: ils se connaissent bien et se font une confiance absolue. Tout a changé ces jours-ci. Certains d’entre eux ont sans doute acquis un peu trop de ces dettes aujourd’hui en souffrance, mais personne ne sait qui est dans cette situation. Alors la confiance disparaît et, par prudence, plus personne de prête à personne.

Depuis le début de la semaine, le marché monétaire s’est gelé, par méfiance réciproque. Or c’est sur ce marché que comptent les grands établissements pour financer chaque jour leurs opérations. On risque donc de se retrouver dans une situation où il n’y aura plus de crédit bancaire, ni pour les entreprises, ni pour les particuliers, ni même pour les gouvernements. Et sans crédit, la mécanique économique se bloque, et ça peut être très grave.

Tout dépend des nerfs des banquiers centraux

Ce n’est pas parce que les financiers s'affolent un peu vite que nous devons, nous aussi, paniquer. Les pertes dues à la crise de l’immobilier aux Etats-Unis et ailleurs (là aussi, la contagion peut s’étendre) peuvent parfaitement être absorbées, d’autant qu’on vu venir la crise. Les établissements qui détiennent ces prêts hypothécaires risqués –les fameux "subprimes"– le savent et, pour la plupart d’entre eux, ont mis de l’argent de côté, en se gardant bien de le claironner. Le problème, c’est la méfiance qui s’est installée. Alors, très sagement, les grandes banques centrales interviennent. Elles prêtent aux établissements financiers l’argent qu’ils ne trouvent plus sur le marché monétaire, pour leur permettre de continuer à faire leur travail de distributeurs de prêts.

Combien de temps cette situation peut-elle durer ? Il va falloir des mois pour que le marché immobilier se stabilise et que les pertes des établissements exposés sortent du bois. On peut s’attendre à des faillites, dont certaines retentissantes, qui vont périodiquement secouer les marchés. Tant que ces accès de fièvre restent circonscrits aux marchés financiers, la croissance que nous connaissons devrait se poursuivre. Mais il y a des risques. D’abord, les banques centrales auront-elles les nerfs assez solides pour continuer à injecter de la liquidité comme elles viennent de le faire? En principe, elles ne devraient pas fléchir, mais certains analystes vont bientôt crier au loup et dénoncer ces interventions comme inflationnistes.

Ils se tromperont, ce qui ne signifie pas qu’ils ne seront pas entendus. Et puis, surtout, il y a les ménages et les entreprises. Si ces nouvelles un peu ésotériques les troublent, ils pourraient bien se mettre à épargner plus, ce qui casserait la croissance et ferait repartir le chômage à la hausse. Ce serait vraiment triste.

Le gros problème dans cette analyse c'est que notre ami ne mentionne pas du tout les risques inflationniste des mesures attendues des banques centrales.
Pour l'instant on n'en parle pas, mais inévitablement ces liquidités se retrouveront en circulation et vont finir par faire monter les prix des biens de consommations courantes.
Ce n'est pas vraiment ce qui va faire remonter la confiance des ménages.

Cela dit, il n'y a pas à s'inquiéter sur le "sang froid" des banquiers centraux, ils n'hésiteront jamais à faire ce qu'ils savent si bien faire, c'est à dire gonfler la masse monétaire. Aux Etats-Unis, mais également en Europe, les voix qui s'élèvent en faveur d'un durcissement monétaires sont extrêmement minoritaires.

Par contre les epargnants et les consommateurs vont payer les pots cassés, pour sauver les pauvres banques et les fonds surendettés. Eh oui, c'est aussi ça l'injection de liquidités Mr Wyplosz.

vendredi 10 août 2007

BNP Paribas comes in

Gold ended down 2% today. It fell along with the rest of the stock market. The Dow was especially hit, finishing at the lowest point of the day and continuing the trend seen in Europe earlier. BNP Paribas made the news by announcing that it would suspend two funds made up of obligations affected by the US subprime mortgage market.

This is funny for me because I used to work for BNP Paribas in Paris, and it was not a very happy experience.

Meanwhile, it was announced that the ECB was injecting a record amount of liquidity in the money market. The highest since septembre 11.
This mortage crisis is turning into the beginning of a panic. But we will have to wait to see how it all turns out.

But I am convinced that in the medium term it will be good for Gold.
The Central banks will do anything to avoid a depression because this one would be a disaster.
They will have to relax their monetary policy further, until inflation becomes a real problem and at this point in a few years, Gold price will be much higher.
Right now , the FED, in particular onlly talks about fighting inflation, but won't be able to follow suit.
It talks the talk, but doesn't walk the walk.

In the short run, Gold suffers, but we've seen this before in May 2006 ane February 2007, and it doesn't contradict the long term bullish trend for gold.

Right now with the panic that we see in the Stock Market, many forecasts emanating from the Gold bugs camp are realized and it can only reassure us of this investment in Gold.

Pas de panique les goldbugs.

Pas de panique les goldbugs !
Les Banques Centrales shortent le gold tout en injectant des liquidités.
ça ne fera pas illusion très longtemps.

Rappel historique : les banques centrales n'ont jamais gagné contre le marché (vous vous souvenez de Soros contre la banque d'Angleterre en 1992 ?)

Au bout d'un moment les marchés actions vont se calmer et remonter en flèche, jusqu'à la prochaine panique.

Et tout cela au prix d'un gonflement encore accru des liquidités, bien entendu. La BCE a en effet fait marcher la planche à billet à un rythme record ces deux derniers jours
D'ici 6 mois le CAC aura évolué en dents de scie et le Gold sera peut-être à 800$/l'once.

Ne vous laissez pas tromper par les mouvements à court terme.

Le Pétage de plomb en direct de Jim Cramer

If you don't know yet the CNBC presenter Jim Cramer, that should be a good introduction.

It sould be titled :
"Financial crisis are so much fun !"

What The F. ? What's going on with Jim Cramer ?

If you don't know yet the CNBC presenter Jim Cramer, that should be a good introduction.

It sould be titled :
"Financial crisis are so much fun !"

jeudi 9 août 2007

Rien de nouveau sous le soleil

Avec la volatilité actuelle sur les marchés financiers, Gold et Silver sont une fois encore victimes collatérales des fortes corrections sur les marchés obligataires et marchés actions.
Cela a été déjà le cas en Mai 2006 (très fortement car l'once était alors au plus haut) et plus récemment en Février 2007 (un peu moins fortement).

Aujourd'hui, je constate que cette correction est relativement limitée, mais frustrante pour les investisseurs dans le métal jaune qui espèrent (à juste raison) une réaction inverse au marché action.

Or, dans ces observations il faut distinguer les évolutions à court terme des tendances historiques lourdes.

L'Or a toujours été inversement corrélé avec les marchés action, et 2 ans de données ne vont probablement pas changer cet état de fait statistique.

L'Or subit toujours une consolidation horizontale depuis le printemps 2006 après un excès haussier qui a culminé en Mai.

Par ailleurs l'Or subit les ventes des banques centrales et le scepticisme de beaucoup d'investisseurs.
Dans ces conditions les positions Shorts des grosses banques d'affaires ont été capables d'endiguer la hausse plusieurs fois et d'effrayer les investisseurs dans l'or à court terme (souvent au travers de futures, certificats et autres ETF de plus en plus accessibles au grand public).

Dans le même temps la baisse à chaque fois été relativement limitée parce qu'elle a été stoppée par la demande d'or physique qui est une tendance lourde et en pleine croissance, surtout en provenance des géants en devenir que sont l'Inde et la Chine.

Il y a donc bien deux types d'investisseurs dans l'or, les investisseurs dans l'or "Papier" et plutôt court terme, qui sont aisément manipulables par des gros investisseurs parce que leur horizon est court et leurs émotions sont vives, et d'autre part des investisseurs qui misent avant tout sur l'or par sécurité ou tradition, qui investissent dans l'or physique (que ce soient des lingots, des pièces ou bien de magnifiques bijoux donnés en cadeaux de mariage aux jeunes indiennes).
Cette dernière catégorie est une marée lente mais inexorable qui finira par déborder les ventes des banques centrales.

Historiquement, les banques centrales ont les pires résultats de trading. Exemple : la banque d'Angleterre a vendu en 2000-2001 une grande quantité d'or au plus bas historique qu'on a qualifié de "relique barbare" (en reprenant une citation de Keynes, qui n'a pas toujours raison)

Lorsque les vannes auront lâché elles suivront et amplifieront la hausse de l'or pour renflouer leur réserve et rassurer le public quant à la crédibilité de la monnaie papier.

Cette longue période de consolidation est donc logique et nécessaire.
Elle se débarrassera de beaucoup de spéculateurs, et seuls les plus patients en récolteront les fruits.

mercredi 8 août 2007

Trench Warfare

The current trend on the Gold market is still up, but my Gold stocks have behaved in a very frustrating manner, or worse, lately.
In particular, my Harmony Gold stocks have suffered a true crash (-30% in 2 days) and it caught me off guard. Some other gold stocks have also been hit perhaps because of contagion.

But Harmony apart, the Gold stocks' trend is not bearish yet. It has just suffered a correction on an overall flat trendline.
In the meantime, the stockmarket has suffered a mini crash before recovering.

So the trench warfare continues.

Just like in May 2006 and February 2007, this type of correction is very frightening but it isn't a clue for what's coming. Moreover, the fact that this latest mini crash has been so publicized in the media leads me to believe that this is not yet the beginning of a new trend.
(Apparently, I am not the only one with this opionion. Click on this post from "The Big Picture" )


A bull market has to climb a wall of worries.)

But I don't really care how the stock market evolves as long as Gold goes up.

In the long run, Gold stocks are correlated with the Gold price, and not with the rest of Stocks.
But we have to remember that in the short run, appearances can be deceiving. (See this article from Zeal )

To summarize, with the crash of Harmony Gold and the absence of a sustained rally in the rest of my gold position, it is a tough period right now. But I have to remember the basis for my invstments. I should know that in the longer term, and maybe sooner than later, it is going to be a good investment.

And these are the fundamentals

lundi 6 août 2007

Cautious optimism for Gold

From now on, I will try to write more regularly in this blog.
And I will start with an analysis of the Gold market.

My last analysis was a month ago, at an important juncture, because it was just after the rebound that I had (correctly for once) predicted.

At the time I was still cautious, but reasonably optimistic. I wrote that it would depend on the currencies market (which is much larger and more important).
Well the EUR/USD has reached new highs (and is now at a new juncture), but more importantly, the USD/JPY fell dramatically during the month of July. It broke some important support levels and these two factors (EUR/USD and USD/JPY) severely crippled the Dollar Index, which is also threatening important support levels.

At the same time, the stock market has suffered, and for the first time in two years, the Gold market has not followed.
It might be a sign that these two markets are finally going to diverge (which is their normal historic behavior).


Finally the price of Oil has hit new highs and has not suffered from US statistics showing a slowdown.

All in all, we are on track for a stagflation scenario which would be very bullish for Gold.

But I remain cautious, because Gold does have a tendency to disappoint.
This disappointment is only the consequence of the unique excitement that Gold creates.

In any case, the month of august should be interesting.

About this Blog


It is the time for some perspective on this blog project.
Let me explain what is the evolution of its focus and meaning.

At the beginning, I had no precise idea of what it would contain, but gradually it has become a blog focused on Finance, Economics and some Politics.

In particular I have specialized myself in the area of investments and how to interpret the evolution of markets.

I started to learn about investing and speculating in the mid nineties, while I was still a student. Before that, I was interested by it, but it was a somehow remote subject because my family background did not predispose me for such an activity. My parents were middleclass leftist and/or catholic and did not encourage this interest(at the same time, they were interested in getting some returns on their hard earned cash).

But then i studied in a business school, and i grew more and more interested in economics and how this "science" however "dismal" could influence people's lives to a great extent. For me it was very important to manage it carefully for

Later after flirting with "ultra-liberal" ideas and their intellectual attraction, I nuanced them by discovering that ultimately, everything was political. There could not be a "pure" market economy, if only because the "big" players would always abuse their power. Economics was also a question of the balance of power. It was also about political institutions and geopolitics.

This was confirmed by reading Fernand Braudel's work "Civilisation Matérielle, Economie et Capitalisme, XVe-XVIIIe ".

But what really convinced me was the US decision to invade Iraq in 2003.
I was living in the US in 2002-2003, and everything became clear. It was a period when the stockmarket was crashing in the wake of scandals such as Enron, Tyco, Worldcom, and so on. At the same time, I could observe this massive manipulation of the opinion for the preparation of the War in Iraq.
The Bush administration was ostensibly pro-market, and at the same time was favoring manipulators and the crazy interventionists.

That is why I think that there cannot be a pure market-based economy. Anybody with power is bound to abuse it. This is how the world works, and this is why economics is not a science like any other one.
Also all the economic miracles in the developing countries only happenened through state intervention and protectionism, and thanks to their size (example : China, India, Thailand or South Korea)

In the rest of the developing countries , the "opening" of the economy has only led to a new style of colonialism (example : Argentina, Brazil, and all the african countries).

This is why economics is so fascinating to me. It explains a lot of things, but ultimately, it is only a tool in the hands of people.

jeudi 12 juillet 2007

Or : Analyse du jour

Bonjour les Gold Bugs

Ces jours-ci les signaux sont tous tellement favorables au Gold que j'en serais presque sceptique. Voici quels sont ces signaux :

1) le dollar est en train de piquer du nez contre toutes les autres devises. En particulier la plus importante d'entre elles l'Euro

2) Le Pétrole atteint de nouveaux sommets

3) La Fed en la personne de notre cher Benny, n'a pu nier l'impact des perceptions inflationnistes dans l'économie dans ses récentes déclarations

4) Enfin, les actions des sociétés aurifères relèvent enfin la tête et certaines viennent de casser leur tendance baissière

5) La crise des "Sub-prime mortgage" aux US est en train d'éclater au grand jour et le Krach immobilier est en train de se profiler dans plusieurs pays (y compris en France)

6) Les marchés actions quant à eux, butent sur des résistances tenaces et il n'y a rien à en attendre cet été.

Bien entendu, tous ceux qui suivent le cours de l'Or savent qu'il est sujet à de nombreuses manipulations en raison de son importance symbolique dans l'esprit du grand public.
Il y a aura donc encore des ventes massives d'or au plus mauvais moment techniquement

Il faut donc rester prudent au moment où l'once monte fortement, mais il semble bien que les montant et le nombre des acheteurs d'or physique est en augmentation constante durant l'année écoulée (une année de consolidation).
A un moment donné, une masse critique sera atteinte et rien ne pourra empêcher la hausse.

Quelque soient les aléas à Court Terme, les fondamentaux sont bien là :
- Production de l'or en baisse
- Augmentation inconsidérée de la Masse Monétaire
- Raréfaction des ressources naturelles en général, et du pétrole en particulier

A un moment donné une fraction des liquités excessives des institutionnels puis des particuliers (aujourd'hui placé sur les actions, les produits dérivés et surtout l'Immobilier) va se reporter sur les Métaux Précieux qui ont été systématiquement Shortés par les Banques Centrales jusqu'à vider leurs réserves physiques.

ça risque de secouer dans les mois et les années qui viennent

jeudi 5 juillet 2007

Vindication

The analysis in the previous post has been vindicated.

The correction of the price of Gold was exagerated and ultimately it was countered by the movement in currencies as I had predicted. The Dollar hit new lows against the Euro and the British Pound. The Terrorist attacks might have helped as most journalists analised it, but I am not so sure because the geopolitical factor does not impact Gold so much these days.

Now, the Gold Price is at 655,95 and has gained more than 13 $ since June 26th which proved to be the latest Low point.

But paradoxically, after this rally I am not so confident that it is going to continue. We are at a turning point for Gold, but it might go sideways a little longer.

We're going to have to analyse the currency movement a little more before drawing conclusions. It has proved to be the real guide for Gold price.

I am preparing my own little Dollar index to measure how the Dollar (and thus, "a contrario" Gold Price) fares against the most important currencies.

More on that later.

mercredi 27 juin 2007

The worst is never certain

On Tuesday 26th June, the price of gold has plunged once again, to 642$/once, and the price of silver even more at 12,25$/ounce.
It could even make one doubt about the case for precious metals.
A few days before my favourite Gold Stock had plunged even more, threatening to break its oldest support levels.

But the weakness of Gold is paradoxically reassuring me on my investment in this gold stock. It means that there is nothing specifically wrong in this company. The context is just temporarily bad.

And I have no doubts that the price of gold is going to rebound because the US Dollar is getting weaker and weaker against more and more currencies, especially the Euro and the Pound Sterling.
The Swiss Dollar could follow and maybe even the Japanese Yen (from its current lowest level).

I think a perfect storm is building on the currencies front.
Ultimately, the weakness of the dollar is going to transform itself in a new rebound for Gold.

I think currencies are the precursor of gold moves, because they their transaction volumes are huge and undisputable.
Also the price of the crude could play a role in these new movements, and the medium term trend is up.

For all these reasons, I believe the recent weakness in Gold is probably a Bear Trap.

I wouldn't wait for the end of the summer to be positioned in precious metals.

If only because a geopolitical crisis could develop at any moment, and it could be the worst one in a very long time.

Of course the worst is never certain.
But we should prepare for the eventuality of something big, in matters of investment.

The worst is never certain

On Tuesday 26th June, the price of gold has plunged once again, to 642$/once, and the price of silver even more at 12,25$/ounce.
It could even make one doubt about the case for precious metals.
A few days before my favourite Gold Stock had plunged even more, threatening to break its oldest support levels.

But the weakness of Gold is paradoxically reassuring me on my investment in this gold stock. It means that there is nothing specifically wrong in this company. The context is just temporarily bad.

And I have no doubts that the price of gold is going to rebound because the US Dollar is getting weaker and weaker against more and more currencies, especially the Euro and the Pound Sterling.
The Swiss Dollar could follow and maybe even the Japanese Yen (from its current lowest level).

I think a perfect storm is building on the currencies front.
Ultimately, the weakness of the dollar is going to transform itself in a new rebound for Gold.

I think currencies are the precursor of gold moves, because they their transaction volumes are huge and undisputable.
Also the price of the crude could play a role in these new movements, and the medium term trend is up.

For all these reasons, I believe the recent weakness in Gold is probably a Bear Trap.

I wouldn't wait for the end of the summer to be positioned in precious metals.

If only because a geopolitical crisis could develop at any moment, and it could be the worst one in a very long time.

Of course the worst is never certain.
But we should prepare for the eventuality of something big, in matters of investment.

mardi 19 juin 2007

Retournement de tendance ?

C'est la première fois que le cours de l'once monte alors que les marchés action baissent.
Est-ce le début d'un renversement de tendance ?

dimanche 3 juin 2007

Heading for a fall, by fiat?

Today, I am publishing some articles from The Economist, because I noticed that they are temporarily free online and make a very interesting reading.

The first one below is an old Economics focus that seems to predict a rise of Gold (which is rare in the Economist newspaper). The others tend to exhibit the usual bias against Gold, and lastly I copied a whole special survey about Investment Banking that contains everything you need to know about modern exotic products such ad CDO, CDS, and more.

Of course they don't recognize the whole extent of the risks that exist in this system

--------------------

Economics focus

Heading for a fall, by fiat?
Feb 26th 2004
From The Economist print edition

The trouble with paper money

IS THE problem with the dollar only that it is falling? It has certainly been doing that. This month, it fell to $1.29 against the euro. This is its lowest-ever rate against the euro, and represents a decline of 19% since the beginning of 2003. In trade-weighted terms, the dollar has fallen less over the same period (15%), but mainly because Asian central banks have been intervening heavily to stem their currencies' rise against it. Of late, it has been wobbling around unconvincingly: America needs a weaker dollar to correct its current-account deficit. But given the dollar's role as a currency of last resort, some wonder if its decline heralds not just an economic adjustment by the United States, but a crisis of sorts in the value of paper money itself.

Money in its present form is a relatively new invention. For most of human history money meant either gold or silver, either directly, or indirectly by means of the “gold standard” which meant, at least in theory, that all paper money was backed by gold. Enthusiasm for the gold standard evaporated in the 1930s, when it made dreadful conditions worse. But it was adopted in a watered-down version after the second world war, when only the dollar was backed by gold. This arrangement made some sense, since America held three-quarters of the world's gold stock. But it came to an end in 1971, when inflationary pressures in America caused the country's manufacturers to become uncompetitive and forced the country off the gold standard. Since then the world has relied on “fiat money”, so-called because it is created by government fiat and is backed only by the promises of central bankers to protect the value of their currencies. It is the value of those promises that some are now questioning.

Promises, promises
Certainly, those promises have only been worth much in recent years. In the early years of fiat money, inflation took off, especially in America, in part because of the two oil shocks of the 1970s. This debased the value of the dollar, and the price of gold climbed from $35 an ounce to $850.

It was only in 1979, in his famous “Saturday night special”, that Paul Volcker, then chairman of the Federal Reserve, raised interest rates sharply to clamp down on inflation. The gold price subsequently fell sharply and in its place came a bull market in government bonds that has, with a few sharp interruptions, continued to this day. Although central banks around the world still hold about 30,000 tonnes of gold in their reserves, many have been offloading their stocks over the years. They can earn only a nugatory rate of interest on these stocks (by lending them out) compared with what they can earn on government bonds. For most people, gold has been relegated to the status, in the words of Keynes, of a “barbrous relic”; its price has risen only feebly when investors have fretted about inflation.

Those who doubt the continued worth of paper money as a store of value point to two things. The first is that the price of gold has been rising even though official inflation is low. From $253 an ounce in the late 1990s, gold now fetches just over $400 an ounce, and it rose as high as $430 an ounce earlier this year. It is not just the price of gold that has been rising: so, too, have the prices of precious and base metals. There may, of course, be many other reasons for these rises. China's rapidly expanding economy is gobbling up metals and other commodities for its factories. Moreover, the rise in the price of commodities also reflects the weakness in the dollar: these rises look much less impressive when quoted in euros or yen. But the rise in the price of gold in particular has raised questions.

The biggest of these—and the second main reason for concern—is the amount of debt that rich-country governments have been running up. America's official budget deficit has surged in the three years since George Bush became president, to around $520 billion and climbing. But this is just the shortfall this year. The government's total future liabilities are much larger. In fact, according to a forthcoming book by Laurence Kotlikoff, an economist, the present value of the American government's future obligations, taking into account promised pensions and health-care benefits, is a staggering $45 trillion. European governments are only slightly better at managing their budgets—witness the breaching of the single currency's growth and stability pact. Japan's attempts to coax its economy back to life have left it with a gross national debt of some 160% of GDP, the highest of any big country. No country has tried harder to debase its currency.

In theory, such debts would not be tolerated for long by investors, since the easy way out for central banks is to “monetise” them with inflation. Bond prices would fall (and thus yields rise) as investors worried that they would be paid back in a debased currency. But capital markets currently seem oblivious to spiralling debts. At some 4%, yields on ten-year American Treasury bonds are close to their lowest in two generations, although this is partly explained by huge purchases by Asian central banks. Yields elsewhere are also very low, nowhere more so than in Japan, where ten-year government-bond yields are now 1.3%.

The problem may be that bond investors, far from being far-sighted, are in fact myopic, and are perhaps being fooled by the temporary disinflationary effects of excess capacity and debts built up over the bubble years in both Japan and America. Perhaps, too, investors have been lulled into a false sense of security by the performance of central banks in recent years, and the independence that has been granted to many of them by governments. But this very aura of inviolability may be storing up problems, since it means that governments can borrow still more at cheap rates. And if governments then find themselves crushed by debt, you can rest assured that this independence will be taken away. And then, once again, the paper in your pocket will only be as good as a politician's promise.

All that glisters

Buttonwood

All that glisters
Nov 30th 2004
From Economist.com

Is the rise in the price of gold merely the flipside of the dollar’s fall? Or does it point more broadly to a loss of faith in central bankers’ promises?


ALAS, the nearest that Buttonwood gets to visiting jewellery shops these days is a trip to Claire’s Accessories, a chain of fabulously tacky shops beloved of his daughters. To be fair, Claire’s (“Where getting ready is half the fun”) does not pretend to be anything other than cheap and cheerful. Nothing seems to cost more than £2.99. The jewellers in Bond Street, just round the corner from The Economist’s offices, are about as different from Claire’s Accessories as it is possible to get. The stuff in them costs rather more than £2.99. And their already steep prices have been going up because the prices of precious metals have been rising, gold’s not least. In the past week, gold has topped $450 an ounce, its highest level in 16 years—and up from a low of $253 in the late 1990s. What, if anything, does this tell us about investors’ faith in paper currencies.

The financial world, it sometimes seems, is broadly divided into those who believe in gold as the ultimate currency and those who don’t. In the latter camp are most economists, the most famous of whom, John Maynard Keynes, described gold as a “barbarous relic”. But even as late as the 1960s, Charles de Gaulle, then president of France, claimed that gold was the “unalterable fiduciary value par excellence”.

Gold or silver were money for most of human history, either directly or indirectly. Once paper currency was introduced, it was, in theory at least, backed by either of the two metals. Silver was gradually edged out as a monetary metal in the 19th century, from which time the “gold standard” reigned supreme. This arrangement, in its purest form, collapsed in the 1930s, but it continued in a bastardised form after the second world war, when America, which by then held three-quarters of the world’s gold reserves, again tied the dollar to gold, and the rest of the world’s currencies tied themselves to the dollar. In 1971, the dollar was forced off the gold standard because of mounting inflationary pressures. Since then the world has had so-called fiat currencies, which are backed by nothing more than the promises of central bankers and politicians that they will uphold the value of those currencies. Fans of gold—known as gold bugs—wonder whether those promises are worth the paper they aren’t written on.

They certainly weren’t in the early years. Inflation ate away at the value of anything with a fixed monetary value, and during the 1970s the price of gold rose from $35 to $850. But in 1979, Paul Volcker, then chairman of the Federal Reserve, stomped on inflation and the price of gold fell sharply. In its place came a bull market in the price of government bonds.

The dollar, it must be said, fared less well. It may have become the world’s reserve currency, even without the backing of gold, but it has been anything but a splendid investment, especially in recent years. While its internal value has not fallen as much as it once did, thanks to lower inflation, its external value—ie, in relation to other currencies—has been in remorseless decline, albeit punctuated by some longish rallies. In recent weeks, encouraged by malign neglect from American politicians and central bankers, the fall has shown signs of becoming a rout. As the dollar has fallen, so the dollar price of gold has risen.

It used to be that gold bugs touted the yellow metal’s credentials as a hedge against inflation. But the link was anyway pretty feeble, except for currencies with hyperinflation. And though consumer prices have risen a bit this year, it would be hard to make the case that inflation is about to roar anywhere in the developed world. Why, then, is gold prospering at a time when inflation is low? Perhaps it reflects nothing more than the fall in the dollar: gold transactions are denominated in dollars, and in euros the rise in the gold price has been anaemic.

However, there is no law that says a falling dollar must translate into a rising gold price. Apart from a rise in demand for jewellery, the rise in the price of gold may, at the margin, reflect demand for real, hard assets, as opposed to the paper sort. And the reasons are not hard to find, for across the developed world, debts have escalated alarmingly in recent years—and in America not least, hence the vast and growing current-account deficit. While central bankers are generally trusted not to “monetise” these debts by rolling the printing presses, history would suggest that this displays a touching naivety. As James Grant, publisher of an eponymous financial newsletter, and the most erudite of the gold bugs, says: “[Alan] Greenspan, the figurehead of the dollar, was trading at three times book in the late 1990s; I think he may return to book value.” Or lower.

Gold’s virtue, says Mr Grant, is that it is a monetary metal, because of its scarcity and, of course, its history. Actually, Buttonwood can’t help feeling, gold’s history counts against it. Of all the metals, the market for gold is probably the most rigged. It is because of history that central banks hold in their reserves almost a quarter of all the gold that has ever been mined. They would like to sell at least some of it, but the vast amount that they hold means doing so would drive the price down. In 1999, central banks therefore came to an agreement to restrict gold sales. The agreement—or cartel, if you will—was extended in September. But it would presumably be torn up if the gold price rose sharply: the Bank of France said this month that it wants to offload some 500 tonnes over the next five years.

And that would presumably limit gold’s upside. Perhaps a better argument can be made for other scarce metals: platinum, say, or silver. Silver, after all, not only spent centuries vying with gold as a form of money, but also has many industrial uses and is not held by central banks; annual demand is much higher than annual production. Along with many other metals, the price of silver fell sharply in April, but unlike gold it has not even regained the ground it lost. Also in its favour is that it is not exactly sold in industrial quantities at Claire’s Accessories.

The little yellow god

Dec 1st 2005
From The Economist print edition

Even at $500, it's still a barbarous relic

NOTHING swells the breast so much as the thought that you have been proved right at last. After riding high at the start of the 1980s, gold bugs had a miserable couple of decades. The price declined relentlessly, mocking their credo that the security of the financial system ultimately depends upon the yellow metal. Lately, though, the faithful have enjoyed their reward. In the past five years the price of gold has doubled. This week in Asian trading it briefly surpassed $500 a troy ounce—a level last breached in 1987. You can almost feel the bugs' excitement as the message sinks in: gold is back.

This being gold, the resurgence has brought forth all manner of alarming prophecies. The price is an omen of rampant inflation; bonds are doomed; the dollar is about to fall prey to the United States' reckless deficits; the euro will shortly be revealed as a worthless creation of bureaucrats.

The world is an unpredictable place. But, with the possible exception of a fall in the dollar, not much of the above catalogue of doom looks likely; and none of it has much to do with gold's good run. The dull truth is much less bullish for gold. Investors have put money into a wide range of metals, and precious metals' prices, including gold's, have risen with the base. Meanwhile, gold remains fundamentally unattractive. It yields nothing and central banks are sitting on vaultfuls of the stuff that they want eventually to sell. Gold bugs hope that $500 is the threshold at which mainstream investors will start once again to take an interest in the metal. Caveat emptor.

The fascination of gold lies in its being not only a commodity but also a store of value and means of exchange. The glamour and the mystique lie in the latter, monetary part. This is what draws gold bugs, but their story doesn't quite add up. The unbalanced world economy still faces risks. But the most recent rises in the gold price have come against a strong dollar, which is normally a sign of weaker gold and continues to confound warnings of a collapse in the greenback. Oil prices are plainly far higher than they were, but they have come off their peaks. Moreover, there have been few signs so far that oil prices are feeding through to a 1970s-style stagflation. Nothing in either bond or stockmarkets suggests that investors see much danger of such a thing happening.

Bear on bullion
Gold's renewed shine is best explained by thinking of the metal not as money but as a commodity dug out of the ground. In the past few years the price has climbed because mining companies stopped locking in prices by selling gold in advance—in effect, withdrawing a huge source of supply. Even then, gold has captured only 40% of the gains of other metals in The Economist's metals index, which has almost doubled since the start of 2003 thanks partly to fundamental demand from emerging markets and partly to investors in search of better returns than those from other assets. Gold would have done better had Chinese demand risen as fast as some expected; in fact, figures from GFMS, a consultancy, suggest it has been flat, even falling, over the past 20 years. Chinese investors now have other places to put their money.

Gold is still cheap compared with its peak of $850 in 1980. Today, adjusting for changes in American consumer prices, it is worth only a quarter as much. Gold bugs might see that as a chance to buy; others as a reminder of gold's enduring capacity to disappoint.

The New French Connection

COMMENTARY

The New French Connection
By MARIE-JOSÉE KRAVIS

At long last the United States has a friend in the Élysée Palace. In his victory speech, newly elected French President Nicholas Sarkozy assured Americans that they could "count on France."

This is in sharp contrast to former President Jacques Chirac's repeated attempts to undermine U.S. policy. Indeed, during his election campaign -- and despite disapproval at home -- Mr. Sarkozy came to Washington and deplored the "arrogance" of the French veto threat that preceded the Iraq war. Next week President Bush will meet Mr. Sarkozy at the annual G-8 summit in Germany, the first face-to-face test of France's new attitude.

French Foreign Minister Bernard Kouchner is also a U.S.-friendly champion of human rights who, in the name of humanitarian intervention, had supported regime change in Iraq. Granted, Mr. Kouchner was not an advocate of America's military strategy in Iraq. But he did oppose a French veto at the U.N. Security Council and campaigned for active interference against the dictator. At the time this was a courageous act.

The most important difference between Messrs. Sarkozy and Chirac may be in their approach to the war on terrorism. Where Mr. Chirac luxuriated in ambiguity and fear of his own Muslim population, Mr. Sarkozy believes the fight against terrorism is a shared global responsibility that cannot be borne exclusively by America. France and her European neighbors must urgently address their own domestic problems of Muslim extremism, and not have their foreign policy held hostage to those internal pressures. How this translates into concrete measures beyond the sharing of intelligence is unclear at this early stage; but Mr. Sarkozy is less likely to allow his foreign-policy positions to be manipulated by France's Muslim community and perceived threats of terrorist retaliation.

He has advocated highly controversial measures to encourage integration, proposing public financing of mosques and the training of imams to reduce reliance on foreign funders such as Saudi Arabia. He has been a proponent of affirmative action for the Muslim minority and hopes that an invigorated French economy will provide more positive outlets for the discontented and disenfranchised. He has recommended increases in French and European defense spending.

Likewise Mr. Sarkozy is unlikely to revive the idea of Europe as anti-American counterweight, which was favored by Mr. Chirac and former German Chancellor Gerhard Schröder. He has warned both Iran and Syria that attempts to drive a wedge between Europe and the U.S. would be futile. Heated debates will ensue about specific actions towards these countries, but thus far Mr. Sarkozy has sided with the U.S. on the need to limit Iran's nuclear capabilities.

Mr. Sarkozy's good will affords the U.S. a unique opportunity to encourage a European coalition focused on the need to balance Russian, not American, actions in Europe. The EU-Russian summit held recently in Samara exposed profound tensions between Europe and Russia on issues such as the future of Kosovo, the deployment of antimissile systems in Poland and the Czech Republic, and energy security. With Mr. Kouchner on the scene, a focus on human rights and phased independence for Kosovo may shed a more critical spotlight on Vladimir Putin's imperious ways.

How hard will Mr. Kouchner be allowed to push? Recently he expressed support for a proposal made by presidential candidate Ségolène Royal to boycott the 2008 Beijing Olympics to protest Chinese support for the Sudanese government over Darfur. No doubt realpolitik and the broader context of French-Chinese relations will dampen such fervor. But generally the U.S. will have a more responsive partner in the EU and at the U.N. Security Council on such critical issues as Iran, North Korea, Darfur, Kosovo and human rights in general. On the African front Mr. Sarkozy is also aligned with U.S. interests, calling for reforms and policies based on results rather than on personal friendships with African leaders.

Can the Bush Administration nurture and build upon this good will? Mr. Sarkozy has challenged the U.S. to lead the struggle against global warming, saying "We're friends but we're different." And Mr. Sarkozy proved it by creating a super ministry of the environment and sustainable development. The G-8 summit unfolds while Mr. Sarkozy is fighting for a majority in the Assemblée Nationale. Accommodation from the U.S., however modest, would greatly enhance the relationship.

Mr. Sarkozy's arrival is an opportunity not to be squandered or trivialized. It could herald a major shift in U.S.-French relations and reinvigorate the broader trans-Atlantic alliance -- provided the U.S. has learned that it cannot win every argument and that respect goes a long way, especially for countries that have seen their power and prestige irretrievably decline This time, there will be no haughty and tricky Jacques Chirac to blame if the relationship fails.

Ms. Kravis is a senior fellow at the Hudson Institute.

Risk and reward

International banking

Risk and reward
May 17th 2007 From The Economist print edition



Worried about credit risk? You should fret more about pension funds than banks


REMEMBER the days when loans were discussed over lunch at the Rotary Club and sealed with a handshake? Pretty soon, the idea of a banker knowing the name of the person he is lending to—let alone inside details of his credit history—could be as quaint a feature of banking's past as bowler hats and Bonnie and Clyde.
Thanks to technological and financial wizardry, loans are now made with little contact between borrower and lender, and are shuffled around the financial system like so many cards at a poker table. Lately, the results of this “arm's length” banking model have looked reassuringly positive. As our survey in this issue describes, international investment banks such as Goldman Sachs and Deutsche Bank have become vast financial-liquidity factories, turning loans into tradable securities, selling them on and earning record profits as a reward. With banks' risk portfolios more diversified and less stodgy than before, banking crises are rare: the closure of a small bank near Pittsburgh in February was the first such institution in America to fold since June 2004.
Yet just because credit risk is more evenly spread does not necessarily mean the system as a whole is safe. Indeed, it may be prone to less frequent, but more violent, shocks, spreading from individual banks throughout the financial system. Thanks to the relentless dealmaking between financial institutions, if (or rather when) liquidity dries up, risks that the banks think they have outsourced to hedge funds, insurance companies and pension funds might cascade back onto their books.
Three forces have enabled the biggest banks to boost the volume and complexity of financial instruments, and the speed at which they are traded. Each has an element of recklessness. The first is the explosion of credit derivatives, which protect buyers from the risk of default. By selling these, banks have brokered insurance contracts to the new holders of risk that in good times produce steady streams of income, but could require huge payouts if markets ever seize up.
The second is the rating agencies, the new arbiters of credit risk. Banks were once the experts on whom they lent to, with inside knowledge on their borrowers. Now that they sell their exposures, they have blithely passed this responsibility on to outsiders, such as Moody's, Standard & Poor's and Fitch Ratings. The agencies have done fabulously well from the stream of new business, but they are further away from borrowers.
Third, the ability of banks to sell their loans may well have led to a lowering of lending standards. Why double-check somebody's books if you are selling on the risk in a matter of days (or even hours)? That became painfully evident this year after American finance companies lent to needy borrowers with poor credit records in the “subprime” mortgage market. Borrowing is also getting easier for private-equity firms, one of which this week threw yet more caution to the wind by proposing to buy Chrysler (see article). Banks have started lending to them with worryingly easy-going covenants, which give lenders scant power to intervene if a loan risks going bad.
Basel: more exciting than you thought
Privately, virtually every investment banker expresses nervousness about the hard-to-quantify “tail risks” in the new banking model. Some have built up plump liquidity cushions in case of disaster. But what about the regulators?
The main answer is the Basel 2 banking accord, due to be introduced next year. In terms of banking, it has plainly had a healthy effect: banks have strengthened their risk-management systems and spread their risks—so much so that many should be able to hold less capital against their loans. The danger, however, is that by focusing on the health of banks, the regulators have shunted problems into less supervised realms of the financial system, such as the pensions industry. If pension-fund trustees, with less experience than banks in judging credit risk, have allowed the wrong investments, the consequences would be grave indeed