onsdag 10 augusti 2011

UK gilts: curb your enthusiasm?

Despite the scenes of rioting in London, UK gilts remain popular as a safe haven for overseas investors. But Jennifer Hughes, investment editor, warns the mood may be changing as downward pressure on sterling builds

In a letter sent out by Olli Rehn to the European parliament on August 9, Rehn, in attempting to defend the fact that the ECB has now become Europe's "bad bank" and is thus nothing but a political vehicle to be used and abused by Germany which is the only one that can fund the ECB's non-existent equity capital, said that this ongoing intervention is critical in "dysfunctional" markets. He also completely fabricated the claim that the bond buying program is compatible with the EU Treaty. Supposedly he was envisioning the no bailout clause in the EU treaty. And to punctuate his point, the ECB proceeded to buy Italian and Spanish bonds for the third day this week, earlier today. Yet all that is boring, bureaucratic rhetoric. Where you should prepare to have your frontal lobe turn to jelly is the following: in defending why the expanded SMP program, which may soon hit hundreds of billions in onboarded toxic bonds, Rehn said the central bank’s investments are safe because “the bonds are purchased in the secondary market at market price -- i.e. the credit risk is already factored in,” according to a response dated yesterday to a query by an EU lawmaker. We will repeat this.... because it bears repeating: there is no risk of loss to the ECB's loan portfolio because they are purchased in the open market. In other words, if you, or a central bank, or an alien from Uranus, buys something in the open market, it is a risk free transaction....

Strange then that no risk makes German bond rates increas. Clearly there is a cost associated for this what actually is a real fiscal union implemented i Europe. Something no one ever had the option to vote for.

ECB moves towards a fiscal union

as economic fundamentas deteriorate seems the markets more or less anticipate QE3.

QE3 ahoy!
The agreement on raising the US debt ceiling, assuming it is voted through, won't see any appreciable spending cuts kick in until after the next presidential election in 2013. But it will prevent any new stimulus for the economy. This leaves any nurturing down to the Federal Reserve if need arises. As James Mackintosh, investment editor, points out, the economy is crying out for help, and the markets are already sighting QE3, the next round of quantitative easing, on the horizon

from a QE3 perspective what would happen if that was released with a gold price at an ATH? Mayby thats the one issue the FED has to monitor before embarking on a new round of stimuli. "Gold is in a bubbel and has to pop and when it does it will be painfull" according to Mr Hadas. Clearly there is nothing Central banks look to "manage" more than precious metals as a high gold price is the ultimate vote against the fiat currency system.

Gold bubble
The Lex column has believed there's a bubble in gold for several years. The yellow metal meantime has climbed to record levels. Lex's Sarah O'Connor and Edward Hadas debate the column's bubble theory.

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