Getting Technical
Gold and Silver Are Even Weaker Than They Look
Despite a weak dollar, precious metals are still struggling. Here’s why they look to stay that way.
By Michael Kahn
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Chart 1
Chart 2
The second reason for a skeptical view is the metals’ performance as the U.S. dollar moves lower. Since gold, silver, and many other commodities are priced in dollars, a weak dollar should result in higher commodities prices, assuming other factors hold steady. But that hasn’t happened this year.
A chart of gold priced in euros shows the metal’s true weakness (see Chart 3). The current decline moved the market below last year’s major low as well as the trendline from 2015. While gold priced in euros is also oversold in the short term, the technical damage here is significant.
Chart 3
Chart 4
This is important because it tells us that optimistic investors who bought gold in May thinking it was improving have thrown in the towel. Demand is weak for this market, and that makes a rally less likely.
The caveat here is the same as it has been for other markets. Gold’s weakness—and stocks’ strength—has been predicated on an improving economy. Should Congress fail to reach agreements on health care and especially tax reform, conditions could change. Yet we cannot invest on what might happen. Right now, the charts tell us precious metals should remain weak.
GOLD AND SILVER ARE EVEN WEAKER THAN THEY LOOK / BARRON´S MAGAZINE
BOND SELL-OFF FAILS TO DERAIL FED UNWINDING PLANS FOR QE / THE FINANCIAL TIMES
Bond sell-off fails to derail Fed unwinding plans for QE
US central bank appears unshaken by market turbulence and soft inflation readings
by: Sam Fleming in Washington
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© Bloomberg
A sustained run of weak US inflation readings has yet to derail the Federal Reserve’s plans to start unwinding quantitative easing as soon as September.
The sensitivity of efforts to unwind crisis-era stimulus has been underscored in recent days as top officials in the euro area and the UK struggled to fine-tune their messages, triggering a bond-market sell-off. In the US core inflation retreated further on Friday, reinforcing calls from Fed critics for the central bank to shelve its tightening campaign.
But recent comments from US officials suggest they are sticking to their basic case that falling unemployment will eventually drive up price growth and that ultra-gradual tightening remains in order. Janet Yellen, the Fed chair, on Wednesday reiterated plans for gradual rate rises and said the Fed’s balance sheet plans were “well understood” by markets.
“They have effectively made their decisions on running down the balance sheet already, so they only need to decide when, and September is certainly possible,” said Roberto Perli, an economist at Cornerstone Macro. “Part of the motivation is to start the process this year before new leadership comes in in 2018. Meanwhile it is prudent to take a break from rate hikes to clarify what is happening on inflation.”
Minutes from the Fed’s latest policy meeting on Wednesday will shed more light on how the Federal Open Market Committee views sub-par inflation. Ms Yellen appeared sanguine about low price growth in June when the Fed lifted short-term interest rates by a quarter point, saying the process of shrinking the balance sheet could start “relatively soon”.
Patrick Harker, the Philadelphia Fed president, told the FT last month that he believed the Fed should hold fire on rates while moving forward with balance sheet rundown given his view — shared by many Fed policymakers — that the latter process will have only a modest tightening impact. This could point to a possible September move on the balance sheet with a rate rise on the cards in December, when policymakers will have a clearer sense of how inflation readings are panning out.
If inflation data were to disappoint persistently, or if the market sell-off were to gather steam, that would begin to shift more Fed officials towards a dovish stance. Some rate setters have cited the benign market conditions of recent months as a supportive factor to be balanced against soft inflation readings.
But it remains an article of faith among Fed rate-setters including Ms Yellen that once unemployment gets low enough it will trigger higher wages and inflation, arguing for a very gentle tightening in monetary policy.
The Fed has played down the significance of its balance sheet rundown, with Ms Yellen saying it will be as uneventful as watching paint dry, but that does not make the timing of the decision straightforward.
Leaving the kick-off as late as December, as some economists predict, could mean commencing a delicate process only seven weeks before the possible departure of Ms Yellen, who may not win a second term as Fed chair from President Donald Trump. Those weeks would be an anxious time in markets as investors anticipate a change of direction at the top of the Fed.
On the other hand, September, which is the other most likely moment to begin the balance sheet rundown, could be clouded by a debt ceiling showdown, something that would also prove destabilising to markets. The Congressional Budget Office last week said the Treasury may run out of cash in early- or mid-October if the debt limit is not lifted. The Fed’s next policy decisions are due on July 26 and September 20.
The Fed has to date been satisfied with the way the markets have digested its balance sheet communications, but it has bitter experience from 2013, when then-chair Ben Bernanke inadvertently triggered a bond market ‘tantrum’ by foreshadowing the tapering of bond purchases.
It is hard to know exactly how much of the Fed unwinding plan is already priced into markets. When the starting gun is fired, it will commence a process that would only be halted in the case of a nasty downturn. That could in itself mark an inflection point as traders are forced to adjust to a seemingly inexorable, multiyear process.
Mr Harker said in the FT interview that the decision on timing has yet to be made. With their favoured measure of core inflation now at just 1.4 per cent, Fed officials will be watching subpar inflation data closely and further disappointments would prompt doves to start calling for a change of view.
Policymakers will have three more consumer price index reports under their belt by the time they hold their September deliberations. Just as critical are employment readings, with the next jobs report due on Friday in the wake of a slowdown in business hiring over recent months.
THE COMPLICATED FAILURE OF TWO ITALIAN LENDERS / THE ECONOMIST
European Banks
The complicated failure of two Italian lenders

On June 23rd the European Central Bank (ECB) declared that the banks were “failing or likely to fail”. Two days later, after a frantic weekend, the Italian government pronounced them dead: their good assets were sold to Intesa Sanpaolo, Italy’s second-biggest lender, for a token €1 ($1.14), and their dud ones put into a “bad bank”. The operation may cost Italian taxpayers €17bn. This is the second call on Italy’s public purse this month. On June 1st the commission approved, in principle, the rescue of long-troubled Monte dei Paschi di Siena, the fourth-biggest bank, which is expected to cost the state €6.6bn.
The Veneto banks’ clients breathed a sigh of relief when branches opened on June 26th. So did the stockmarket: bank shares rose. So did holders of the lenders’ senior bonds, which will be taken on by Intesa. In early June they had traded at below 74 cents on the euro. They jumped to above par (see chart).

Only one other such case has reached the SRB. On June 6th the ECB deemed Banco Popular, Spain’s sixth-biggest bank, to be in its death throes. The SRB put Popular into “resolution”—the European procedure for winding up banks—and overnight it was sold to Santander, Spain’s biggest lender, also for €1. Under rules that came into force in January 2016, equity, bonds (both senior and junior) and deposits over €100,000 must take losses, to the value of 8% of total liabilities, before public money is injected into a bank. Shareholders and junior bondholders were wiped out, but senior creditors were spared. Taxpayers did not pay a cent; Santander will raise €7bn in equity.
The SRB dealt with the Italian pair differently. It judged that it was “not warranted in the public interest” to put them into resolution. Their demise would not have a “significant adverse impact on financial stability”, because of their limited interconnections with other banks. (At the end of 2016 they were Italy’s 10th- and 11th-biggest by assets.) The SRB instead decided that they should be dealt with under Italian insolvency law. Shareholders and holders of junior debt will suffer losses, though retail investors, who own €200m in junior bonds, will be compensated for “mis-selling”; Italian banks routinely sold such bonds to retail customers.
Senior creditors were untouched.
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The commission’s competition arm approved the aid.
Using national insolvency will also suit Italy’s banks as a whole. Resolution would have cost them €12.5bn under the country’s deposit-guarantee scheme, putting an unwelcome dent in their capital ratios. The deal also frees money in Atlante, a fund backed by Italian financial institutions, which had been earmarked for buying the Veneto banks’ bad loans. It may now be spent on Monte dei Paschi’s.
Critics—most vocally, some German MEPs—lament the splurge of public money: Europe’s new rules, after all, are supposed to discourage that. They argue that the bail-out has put paid to Europe’s proposed “banking union”, in which one set of rules should apply to all. That is overblown, says Nicolas Véron of Bruegel, a Brussels think-tank, and the Peterson Institute for International Economics in Washington, DC. Banking union is incomplete: this episode serves as a reminder. “The single resolution mechanism is not really single as long as you have different insolvency regimes for banks,” says Mr Véron.
Moreover, given the wretched state of the Veneto banks, their acquirer could demand a dowry; Santander was willing to raise money to absorb an essentially sound Popular. Arguably, Italy should have sorted out its mess sooner, before Europe’s stricter bail-out rules came into force; but it has spent a pittance compared with what other countries shelled out after the financial crisis.
Italy’s pile of non-performing loans is at last shrinking. But worries linger—notably about Carige, a Genoese bank. While the economy continues to crawl, many lenders will struggle for profit.
Although consolidation is taking place, Italy’s bank branches still outnumber its pizzerias; despite recent reform, recovery of bad debts is still slow. Bail-outs are forgivable—if they mean a fresh start.
Time for Italy, if it can, to prove the doubters wrong.
THE END OF THE BEGINNING: DONALD TRUMP AND XI JIMPING ARE NOT SO FRIENDLY AFTER ALL / THE ECONOMIST
The end of the beginning
Donald Trump and Xi Jinping are not so friendly after all

Over the past fortnight, in a calculated escalation of criticism, America’s State Department downgraded China to the lowest ranking in its annual report on human trafficking. Then the Treasury said it would impose sanctions on the China-based Bank of Dandong because, it claimed, the bank was helping North Korea’s government to finance a ballistic-missile programme. Next the State Department approved the sale of arms worth $1.4bn to Taiwan, which China says is a mere province of the People’s Republic (the sale must still be approved by America’s Congress).
Then, on July 4th, North Korea—the main source of America’s frustration with China—reminded the two big powers of the potential dangers of inaction. The government in Pyongyang claimed it had successfully tested an intercontinental ballistic missile that American experts reckon is capable of hitting Alaska. One day earlier Mr Trump had called Mr Xi to tell him that, if China would not ratchet up pressure on North Korea, America would. The recent steps taken by his administration seem designed to influence Mr Xi not by persuasion (which has got nowhere) but by sanctions and coercion.
The surprise is not that the honeymoon has come to an end but that there was ever one at all.
The interlude depended on wishful thinking by both sides. China saw Mr Trump as just one more American president who, though he might roar anti-Chinese rhetoric on the campaign trail, would be constrained by the responsibilities of office. Mr Trump’s penchant for personal (rather than institutional) power and for installing family members in the White House, also pleased Chinese leaders: this is the sort of thing they are familiar with at home. And when Mr Xi demanded that Mr Trump endorse America’s traditional one-China policy and Mr Trump duly obliged, the Chinese concluded that all they had to do was sit tight and Mr Trump would cave in. All this seems to have led China to overestimate its influence over Mr Trump.
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But though China has stepped up sanctions, it is reluctant to do anything that it believes might threaten the stability of North Korea’s regime. America’s understanding of how far Mr Xi will go may well have been clouded by a lack of senior appointees at the top of the State Department. For instance, there is still no deputy secretary of state, let alone a diplomat responsible for overseeing East Asian affairs.
But the timing of America’s China-riling moves was significant. They came on the eve of the G20 summit, overshadowing what Mr Xi hopes will be an opportunity to bask in global acclaim by again proclaiming his support for globalisation and for the Paris climate treaty, which Mr Trump has said America will abandon.
They also came just before the deadline (on July 16th) that America and China set themselves to implement a list of trade measures that were promised at the citrus summit, such as letting foreign credit-rating agencies into China. Most important, the end of the honeymoon comes just as the administration is again threatening to impose tariffs on steel and other imports into America, which would affect China more than most. The risks of a trade dispute are rising, even as mutual rancour grows over North Korea, Taiwan and the South China Sea.
CONSOLIDATING LATIN AMERICA´S GAINS / PROJECT SYNDICATE
Consolidating Latin America’s Gains
Andrés Velasco
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SANTIAGO – At the time of last year’s failed coup in Turkey, I emailed a Turkish friend expressing concern. His answer left me thinking. After a somber review of events in his country, he concluded: “You are very lucky to be in Latin America, even though it may not seem that way sometimes.”
SHOULD WE BE WORRIED ABOUT PRODUCTIVITY TRENDS? / PROJECT SYNDICATE
Should We Be Worried About Productivity Trends?
Sandile Hlatshwayo, Michael Spence
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MILAN – Economists concern themselves not only with addressing difficult questions thoughtfully, but also with formulating the questions themselves. Sometimes, rethinking those questions can hold the key to finding the answers we need.
Social media, for example, has often been derided as a feeble or even negative contributor to productivity. But productivity is not the point of social media. What people value about it is the connectivity, interaction, communication, and diversion that it enables.
Bienvenida
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Friedrich Nietzsche
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
Lao Tse
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
Warren Buffett
No soy alguien que sabe, sino alguien que busca.
FOZ
Only Gold is money. Everything else is debt.
J.P. Morgan
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Proverbio Chino
Quien no lo ha dado todo no ha dado nada.
Helenio Herrera
History repeats itself, first as tragedy, second as farce.
Karl Marx
If you know the other and know yourself, you need not fear the result of a hundred battles.
Sun Tzu
Paulo Coelho

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- THE END OF THE BEGINNING: DONALD TRUMP AND XI JIMP...
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