90 seconds at 9 am

90 seconds at 9 am: Markets buffeted on sharpening Greek uncertainty; exit now being planned; commodities fall sharply; Australia to be affected; NZ Budget

24th May 12, 8:52am by David Chaston

Bernard Hickey is in Wellington today covering the 2012/13 Budget announcements. Here's my summary of the key news overnight in 90 seconds at 9 am, including news that equity markets fell from Asia to New York, and the euro tumbled to near a two-year low as investors focused on contingency plans for a potential Greek exit from the euro zone.

EU leaders are gathering in Brussels for an ironically-called "growth summit" as the German central bank said a Greek exit from the euro would be "manageable" - even while Greece denied that eurozone leaders were told to prepare for the eventuality.

Commodities are falling as a general gloom settles over world markets. US oil dipped below US$90/barrel, pushed lower on reports of large US inventories. Brent crude fell 2.2% to US$106/barrel. Gold fell very sharply and at one stage was as low as US$1,533/ounce, although it has clawed back some of that fall - but it is showing that it now behaves just like any other commodity. It is not acting like a store-of-value or a safe-haven these days. It is US Treasuries that have taken on that role - overnight, the US Treasury auctioned 5-year Notes at a record low yield of 0.748%

In the US, new home sales rose. Sales were up and better than expected in almost all regions of the country. The median price rose to US$235,700, an increase from March. This positive US home sales data comes after yesterday's positive data for existing home sales.

But that was one of the few bright spots overnight. Closer to home, the World Bank is warning that slowing growth in China will flow on to weakening demand for Australian minerals. And the big miners are having trouble controlling their costs on existing projects, just as demand looks like it is slowing.

In Wellington today, Bill English will announce the 2012/13 Government budget - one released when there are very strong stresses on both the revenue and cost side. Bernard Hickey and Alex Tarrant will be in the Treasury lockup so that we can bring you the key budget news as soon as it is released publically at about 2pm this afternoon.

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22 Comments

by scarfie | 24th May 12, 9:43am 1337809422

http://www.zerohedge.com/news/guest-post-dollar-backwardation

Dollar backwardation, haven't heard of that one before although have had thoughts along similar lines. Got you savings stashed under the pillow? Lol.

by Kiwi | 24th May 12, 9:56am 1337810162

It is not acting like a store-of-value or a safe-haven these days.

David is feeling bored so he has decided to wind up the Gold bugs.

He is repeating our narrative though. Change is in the air.

Not long to wait now.. before Gold starts behaving like it has always behaved throughout history.

by economist | 24th May 12, 12:27pm 1337819253

Its because David and other commentators are obsessed with short term technical trading patterns these days. They are just market noise. Gold up $100, down $100 who cares? You have to look at multi-year graphs to see the real trend is clearly down for all currencies against gold. But they will tell you, (with 99% of people and funds with no exposure to gold in any form), gold is in a bubble when the real bubble is US treasuries. The rise in US treasuries is not because the US is doing so well, but because the world is finally waking up to the failed euro experiment. The world hasn't woken up to the point that the USD is also in a hopeless situation... when it does gold will be priced out of the reach of common men and women. At that point the herd will dump US treasuries for the worthless things they will become.... It is great news for gold buyers that the vast majority hasn't discovered this yet.

by Kunst | 24th May 12, 12:53pm 1337820833

economist - your well described situation, brings me back to my article this morning 9:25am:

What is New Zealand doing against our currency losing value fast ? Looking into the link,

obviously no one is concerned about that.

http://www.interest.co.nz/currencies/59450/opening-bell-where-currencies-start-thursday-may-24-2012

by economist | 24th May 12, 1:24pm 1337822653

I can tell you that the powers that be are doing absolutely nothing about the NZD loosing value, besides its still in its longer term trading range...

I think the gold bugs are concerned about NZD and all fiat for that matter, loosing value, thats why they buy gold..... NZD will not be gold backed any time soon, for starters RBNZ just doesn't have any gold.... so don't hold your breathe...

by Kunst | 24th May 12, 1:37pm 1337823469

economist – it is not a matter to find excuses, but solutions. This important issue should become of national interest and should be taken further by the media – like interest.co.nz.

by economist | 24th May 12, 2:15pm 1337825706

I agree absolutely Kunst. Actually the remonetarisation of gold is the only solution to the GFC, as it both fixes the government solvency issues and the liquidity issues at the same time, it also greatly eliminates long term investment uncertainty as it stabilises long term interest rates at low levels... etc...etc... etc... But what I am saying is that is not the solution the central banks want as basically it would dethrone their ability and that of the banking system as a whole, to 'create endless debt based fiat money' - which is also handy if you are a government (like the US and co) who wants to spend more money than you actually have or can raise via taxes...

Gold stands for freedom for the common man, as I have pointed out many times before on this sight:

Howard Buffett on human freedom rests on gold redeemable money:

http://www.fame.org/pdf/buffet3.pdf

Alan Greenspan, before he was restricted in what he could say as chairman of the Fed, basically makes the same point:

http://www.constitution.org/mon/greenspan_gold.htm

Why do you think most countries are quietly accumulating gold for their reserves, (its not just because its shiny) its because they know where all this leads, and at the end of the day its the golden rule - he who has the gold makes the rules.... they have already worked it out, the vast majority haven't and probably never will.... If the USD is so wounderful and a great safe haven, as David would have you believe, then why do the US themselves (and Germany, Italy, Portugal etc...) hold the majority of its foreign reserves still as gold?

by Gummy Bear Hero | 24th May 12, 10:23am 1337811795

The French voters did us all a favour by booting out Knickerless Sarkosy ...... now the Germans stand alone in their wish to foist their ideological version of austreity and pain upon the rest of the Eurozone .......

...... as witnessed on a ABC ( TV ) forum yesterday , the Germans have a super-selective mind : they observe only the money they have tipped into repairing Greece's damaged economy , but forget to see the massive profits their banks were in previous years taking out of the same country .......

by Christov | 24th May 12, 10:42am 1337812969

Yes indeed GBH...and where's the humility in that....mein got hav ve learned nicht...!

Disillusion for the remaining members of the EURO will become the most prevalent condition all the weay to man / person in the street.

If I ruled the World...la la la ...how did that go again...?

by Andy Rodgers | 24th May 12, 10:26am 1337811990

"Gold fell very sharply and at one stage was as low as US$1,533/ounce, although it has clawed back some of that fall - but it is showing that it now behaves just like any other commodity. It is not acting like a store-of-value or a safe-haven these days. It is US Treasuries that have taken on that role - overnight, the US Treasury auctioned 5-year Notes at a record low yield of 0.748%

David - you really don't like gold do you? I certainly wouldn't swap my gold for pieces of paper such as US Treasuries. Who in their right mind would lend money to the U.S. Gov't, with debts approaching $16 Trillion, for 5 years and accept a ridiculously low yield of 0.748%? Oh I know the Federal Reserve headed by the printer of last resort (helicopter) Ben Bernanke.

by Christov | 24th May 12, 10:51am 1337813486

Who indeed Andy R...? ditto N.Z. on a capita basis.....ditto...Spain...ditto Italy...etc etc....

Debt swaps -global energy policing fees + good faith bargaining to keep the lines open....?

It's getting crazy out there....and they just can't kill the beast.

by Ralph | 24th May 12, 11:02am 1337814161

Who in their right mind would lend money to the U.S. Gov't

You might be missing the point here - if one used the actual evidence, the price of gold and the yield on US treasuries - one must conclude that quite a lot of people in their right mind have done exactly that.

by Stephen Hulme | 24th May 12, 11:17am 1337815032

Many bank dealers do since RP financing (GC) is less than 25bps.

by Christov | 24th May 12, 11:19am 1337815190

Eh...uh ..Ralphie...your not just a smooth talker with great pick up lines are you ...eh..

by Andy Rodgers | 24th May 12, 11:31am 1337815888

Ralph - I don't think it's quite a lot of people as in the past 12 months the US Fed has bought 61% of all US Treasuries issued by the Gov't. That doesn't leave a hell of a lot of room for other buyers. This fiat paper money fiasco has been now been operating since 1971, when Nixon closed the gold window. I'm not so sure that it will last much longer. However only time will tell.

by Kiwi | 24th May 12, 10:37am 1337812657

Gold is really useful now if your in Europe where all those Bank runs are going on.

Rather than trusting a Foreign Bank to store your wealth you can just buy physical Gold.

by Andrewj | 24th May 12, 11:16am 1337815006

Max Fischer

I think all the sheeple that bought into the massively overhyped FB IPO should adopt the mentality of silver bugs: as the price continues down, pretend that "price doesn't matter" and all that matters is the number of ounces/shares you have. Then pretend that there's a decoupling between the fiat price and the value of the actual physical metal or equity in the company. This way, as your wealth continues to evaporate, you can pretend it isn't.

comment on Zero hedge

by Kiwi | 24th May 12, 11:44am 1337816653

Silver is a very speculative investment, Gold however however, so they tell me, has been rising the last 12 years in a row.

With this sort of track record you might think more people would be investing in Gold however there appears to be a huge misinformation campaign going on that is confusing the sheeple not to buy gold.

by wtf | 24th May 12, 11:38am 1337816327

Look at what happened to gold and silver in 2008. All the big traders had to sell their speculative leveraged positions to cover their losses elsewhere. Everything went down apart from the dollar and the yen. Doesn't matter how good quality something is in theory, if you need the cash and have to sell, the "good" stuff gets put on the block along with the rest.

by Matt in Auck | 24th May 12, 1:11pm 1337821881

People are getting a bit nervous about mining here in Aus. The expansion of the Olympic Dam in South Australia was trumpeted as being massive for the state, BHP Biliton are now seriously contemplating shelving the expansion. An acquaintance who works there is feeling quite insecure, especially as a decision could come anytime between June and December

by goldenfox | 24th May 12, 1:49pm 1337824179

Yeah few mates are on the finishing up at Pluto and Gorgon projects are a bit nervous about what happens next. Nothing on the horizon.

Olympic Dam will be halted. Far too much Iron Ore already ahead in the development pipeline and O.D is just a torrent of Iron Ore when it comes online. It will be a long time till they green light it.

Coal Projects in Surat Basin are also on the knife edge.

Nervous times for anyone not in production.

by reason | 26th May 12, 9:18am 1337980685

Gold is an obvious hedge against the current uncertainties, but I doubt it is quite as useful as it has historically been. Yes, it is a useful metal for certain specifc technologies, but I doubt it will regain the crown it had when it was the grounding point of currencies way back when.

There are other "gold standards" - chief among which is the ability of humans to innovate. The iPhone and iPad serve as examples of a new form of "currency". How many man-hours are committed in the purchase of such items? Those man-hours form a new currency, a new gold standard.

New generations ahead care nothing for how much gold you have stored away, and care nothing for the value of your assets. However, they will commit their man-hours as an exchangeable token for some other glittering object or business opportunity that you offer them. The new gold standard will be in harnessing the labour and spending habits of the upcoming generations.

Facebook is highly valued because it trades in the value of the "new generation man-hours" that I am referring to, however it is also at high risk because there is nothing to stop 100% of the Facebook followers logging out of their accounts and never going back (if they should so choose...). Future investers may get their best return not by buying gold, but by finding ways to take a slice of the "population cake" - and that is why the US bonds look good - not because the US economy has anything going for it, but because US westernism is all about tapping into the future labour, cash and innovation of young, free, democratic populations.

The best hedge for the future is to spot where those "next generation man hours" will be focused. It is like it's own stockmarket, but trading in people, not companies.