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“The world is short water, energy, & commodities. We’ve under-invested in our natural resources as a society and as a consequence, we’ll see higher prices around the globe.”
Mark Cutifani, CEO, AngloGold-Ashanti
Gold was hit early on, and silver shortly followed, despite the rally in stocks and the falling dollar.
This struck me as price manipulation tied to the settlement negotiations that are being done at the Comex as the December positions still standing get resolved for cash with a premium.
Later in the day all prices dropped, with stocks retaining some gains, on news that Standard & Poors would place all the Euro nations on ratings watch, with a pointed reference to the summit meeting later this week.
Speaking of debt, here is a chart showing the worst of the G10 nations in terms of total debt in their economy. As you may recall, I hav said that before the US economy falters, the UK will go first.
On Sunday I read The Hunger Games at the suggestion of she-who-must-be-obeyed in my role as the judge and chief taster of things that the household children might consume that could-be-of-a-questionable-nature. This goes for books, movies, and food. I am also in charge of spider and other unappealing creatures disposal.
It was an easy story and diverting for those who like futuristic science fiction. While a bit dark it was not inappropriate for the 13+ set. I picked up books 2 and 3. I believe there is a film coming out on this book next year.
The stock markets rallied early on with the news that a deal had been struck between German and France.
The volumes were very light and lacked conviction with little follow through even as the SP 500 seemed to break out of its triangle formation.
In the afternoon another headline swept the markets, that Standard & Poors would be placing the entire Euro zone on ratings watch depending on what happens at the Euro summit later this week.
The demimonde is talking stocks up aggressively for 1300+ into year end, or a six percent rally from here.
I went very short on the stock rally, with a corresponding increase in my gold bullion position.
My friend Bart at Nowandfutures.com and I have discovered the cause of the discrepancy between his, and presumably John Williams' estimate of Eurodollars for their M3 estimates, and the BIS reports of Eurodollars.
The Fed's estimate seems to be limited to foreign branches of US banks only.
The Board of Governors of the Federal Reserve discontinued the Weekly Report of Eurodollar Liabilities Held by Selected U.S. Addressees at Foreign Offices of U.S. Banks (FR 2050; OMB No. 7100-0068) in March 2006. In November 2005, the Federal Reserve decided to cease collecting, constructing, and publishing the M3 monetary aggregate, effective in March 2006. As a result of the Federal Reserve's decision to cease constructing the M3 monetary aggregate, data collected on the FR 2050 are no longer needed.
This voluntary report collected two items of daily data once a week: (1) total non-negotiable Eurodollars and (2) negotiable term Eurodollars held in custody accounts, both payable to U.S. addressees other than depository institutions and money market mutual funds. The primary use of the data was to construct the Eurodollar component of the M3 monetary aggregate. The data were also used for analysis of depository institutions' funding practices.
This puts a more practical cast on the discontinuance of the M3 report.
As the BIS reports make very clear, the Fed's method was greatly underestimating the amount of dollars held by overseas banks, which is how the marketplace had come to define Eurodollars.
"A dollar-denominated deposit made in foreign banks or foreign branches of U.S. banks. Depositors sometimes transfer their funds to European banks in order to take advantage of higher interest rates. The Eurodollar is one type of Eurocurrency. Eurodollars are US currency deposited in banks outside the United States but not always in Europe. Certain debt securities are issued in eurodollars and pay interest in US dollars into non-US bank accounts. Eurodollars are a form of eurocurrency."
I think the term Eurodollars outgrew its origins, as it had come to refer to all dollars held overseas outside the jurisdiction of the Fed and the US Federal Government. As you may recall, eurodollars started as a movement by certain entities to hold their US dollar assets outside the Fed to avoid the freezing and seizure of their assets, but it become much more broadly used as the dollar grew into the global reserve currency.
The Fed was faced with the choice of incurring the expense of going back and correcting their numbers to reflect the broader definition. And since they have no authority over non-member banks, they would have to rely on BIS to provide them the data. Their decision was to either redefine M3, or simply discontinue it. They chose the latter.
So to avoid confusion, Eurodollars will refer to any US dollar held as foreign currency as defined by the BIS. M3 Eurodollars will refer to the discontinued series by the Fed which estimated the dollars held overseas at branches of US banks.
I would agree with the Fed that their definition was becoming quaintly irrelevant to the markets. I estimate that today the M3 eurodollars represent less than half of Eurodollars held around the world if one includes official reserves as well as reported commercial bank holdings.
Since it is the total amount of dollars held overseas in liquid form that is of interest to us, we will be using the BIS data to track eurodollars as we have been doing. It does render M3 estimates less interesting however.
