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  Wednesday, 16 Oct 2013 | 2:23 PM ET

The odd reason why gold rose on the Senate deal

Posted By: Alex Rosenberg
apcuk | E+ | Getty Images

Gold and silver enjoyed a quick bump after Senate leaders announced a deal on the debt ceiling and government shutdown, largely on the strength of short-covering.

Many thought that a catastrophic outcome that involved the U.S. hitting the debt ceiling was gold's best hope for a sustained move higher—which left some traders surprised by gold's positive reaction to the deal announcement.

But George Gero, precious metals strategist at RBC Capital Markets, reports that gold open interest fell on the deal even as gold futures rose, meaning that traders were closing their short positions.

(Read more: Wall Street not listening to Washington anymore)

Gero said that people made debt ceiling bets by trading gold and stocks together. "One could have been a hedge against the other."

But now, with the Senate agreeing on a deal and voting about to start, "If you've been using [gold] as a trading vehicle, you want to get out, because there's no more reason to be on the short side of gold," Gero said.

In other words, if you were making a bet on gold and stocks amid the D.C. uncertainty, "You basically want to just square your book now." And for those who were shorting gold on the hunch that it would drop off of a coming deal, squaring their book means closing their short positions.

»Read more
  Tuesday, 15 Oct 2013 | 7:01 PM ET

Three things that worry Marc Faber more than DC

Posted By: Alex Rosenberg

While investors fret over D.C. brinkmanship as the government gets closer and closer to the debt ceiling, "Dr. Doom" Marc Faber has other concerns on his mind.

"I think the markets will move according other events rather than what is happening in Washington," Faber said Tuesday on CNBC's "Futures Now."

Specifically, the publisher of the Gloom Boom & Doom Report newsletter warns of disappointing earnings, deteriorating technicals, and a decline in consumer confidence.

(Read more: Buffett: Debt limit shouldn't be weapon)

Earnings will disappoint

As companies start to report their third quarter earnings, Faber is getting nervous.

"We're coming into earnings season, and the earnings are likely to disappoint," Faber said.

And because earnings will be weaker than investors anticipate, "the market is not cheap anymore, according to different valuation methods," Faber said.

Indeed, the S&P 500's price-to-earnings ratio, the most commonly used valuation metric, has risen from 17 to more than 19 over the course of 2013.

And because stocks are getting more expensive, "the returns over the next five to 10 years will be very moderate," Faber said.

(Read more: Marc Faber: Apple 'could go bust')

»Read more
  Tuesday, 15 Oct 2013 | 2:40 PM ET

Marc Faber: Apple 'could go bust'

Posted By: Alex Rosenberg

Famed investor Marc Faber believes that Apple is a troubled company making an array of frivolous products—and for that reason could be on the road to bankruptcy.

"This is the kind of stock I'm really not interested in," Faber said about Apple on Tuesday's "Futures Now." "I'm not saying it will go bust," but "it could go bust eventually."

(Read more: It's officialApple event set for Oct. 22)

Faber added that it won't go under "tomorrow" or "the day after tomorrow." But the editor and publisher of the Gloom, Boom & Doom Report compares Apple to another technology company that's now infamous for moving slower than the times.

"This is kind of like Polaroid of the 1970s," Faber said. After all, Polaroid, like Apple, was founded and driven by a famous innovator who eventually left the company.

"Dr. [Edwin] Land, who was the founder of Polaroid, had more patents under his head than anyone else in the world," Faber noted.

In 1982, Land (who received more patents than any other American save Thomas Edison) left his seat on Polaroid's board, and gave up his research post at the company. In 2001, Polaroid filed for bankruptcy protection, and proceeded to sell off its businesses.

(Read more: Apple snags Burberry CEO as new retail chief)

»Read more
  Monday, 14 Oct 2013 | 2:31 PM ET

Amid US shutdown, some good news: Gas price relief

Posted By: Javier E. David
Getty Images

A swath of U.S. states are getting a big break at the pump, website GasBuddy said on Monday, with retail prices dipping below $3 a gallon for the first time in nearly a year in some areas.

According to GasBuddy—a site where motorists around the country can post and view local gas prices—16 states are seeing major gas price relief. Among them are Texas, Missouri, New Jersey, Oklahoma, Louisiana and Florida.

In rural Texas, some lucky motorists are getting the rock-bottom price of $2.70 per gallon.

The site added that a handful of other states, including Alabama, Ohio, Pennsylvania and North Carolina, could see similar relief later this week.

»Read more
  Monday, 14 Oct 2013 | 5:13 PM ET

After sudden plunge, gold traders cry conspiracy

Posted By: Alex Rosenberg
Frank Rumpenhorst | AFP | Getty Images

Gold dropped $25 in two minutes Friday morning following what appeared to be a single massive sell order, and professional traders are now pronouncing the sale a deliberate attempt to manipulate the market.

At 8:42 a.m. ET Friday morning, a firm appeared to sell 5,000 gold futures contracts "at the market," meaning at whatever price was available. The massive order was more than the market could take at once and led the CME to automatically halt trading for 10 seconds.

Eric Hunsader of Nanex told CNBC.com on Friday that 2,700 contracts were sold, which triggered the halt, and that the remaining 2,300 were sold once the market resumed trading.

(Read more: Gold's plunge blamed on one massive sell order)

Since one futures contract controls 100 troy ounces of gold, and each troy ounce was worth $1,285 at the time of the sale, this party was selling some $640 million worth of gold in one shot. And it overwhelmed the liquidity in the market.

"Anyone with knowledge of the size and volume in the market would absolutely never, ever place a 5,000 [contract] sell [order] at market, because you could not estimate the offset price," said iiTrader CEO Rich Ilczyszyn.

If Ilczyszyn's firm were placing the order, he said, "we generally would piece the order in to work a better price." That's why he believes the trade was "an error."

But Euro Pacific Capital CEO Peter Schiff, a longtime gold fan, infers darker motives.

"Someone's obviously trying to move the market lower," he told CNBC.com. "A legitimate seller would work a limit over time to get a good price."

Jim Iuorio, managing director at TJM Institutional Services, sees similarities between what happened to gold Friday and what happened Sept. 12, when a big gold sale at 2:54 a.m. ET similarly caused a trading halt and hurt the market.

"There is only one conclusion that seems logical regarding Friday's gold trade and the one from a month ago, and that's that they were designed to manipulate prices," Iuorio said. "They were slightly different, in that the one from a month ago was done when the market was illiquid in order to get the biggest prices movement. Friday's was done around the opening to ensure that there was maximum visibility."

»Read more
  Monday, 14 Oct 2013 | 8:51 AM ET

The gold market’s big question: Deal or no deal?

Posted By: Rich Ilczyszyn
Dario Pignatelli | Bloomberg | Getty Images

Like the stock market, gold is expected react sharply to the outcome of the debt ceiling impasse. But unlike stocks, gold tends to do well in fear-inducing situations. So if there is no deal on the debt ceiling over the next few days, then gold will rise—but if we get a deal before we hit the ceiling, then gold will drop.

Gold broke major support levels in early Friday trading but failed to follow through to the downside after putting in a low of $1,259.60—the lowest level since July. Investors showed support for the metal as Washington headed into a deadlock, but after it failed to rally when it had every reason to do so, investors fled to better-performing assets.

(Read more: Gold's plunge blamed on one massive sell order)

»Read more
  Sunday, 13 Oct 2013 | 5:00 PM ET

Why this could be an awful week for US earnings

Posted By: Alex Rosenberg

A huge week for earning is coming up, with companies as diverse as Coca-Cola, Bank of America, Google and GE revealing how much they earned in the third quarter. And some traders worry that the results won't be good.

"To me, 'negative' is probably the word that comes to mind when I look through this week," said JIm Iuorio, managing director of TJM Institutional Services and a CNBC contributor.

As of Friday, 31 S&P 500 companies have reported, and 55 percent of those have beaten earnings estimates, according to Thomson Reuters I/B/E/S. On the revenue side, 52 percent have beaten estimates.

And in fact, despite concerns about revenue and earnings growth, S&P 500 operating earnings per share for the third quarter are expected to post a recordand the third record in a row, according to S&P's Howard Silverblatt.

As Silverblatt writes: "We will all, legitimately, complain about slow earnings and sales growth, but in the end Q3 may set a record, which is difficult to argue with."

»Read more
  Friday, 11 Oct 2013 | 11:05 AM ET

Gold’s plunge blamed on one massive sell order

Posted By: Alex Rosenberg

Gold lost $25 in two minutes on Friday morning, as the gold market experience a massive surge in volume that triggered a halt in the middle of the plunge. The move took gold down to a three-month low, and was felt across the commodity markets. And incredibly, a single sell order could be the culprit.

"It appears to have been an order to sell 5,000 gold futures contracts at market," Eric Hunsader of Nanex told CNBC.com, when asked to explain the swift move at 8:42 a.m. EDT. "About 2,700 went off and tripped the stop logic, halting gold futures for 10 seconds while liquidity replenished. When enough liquidity returned (after 10 seconds), the balance of about 2,300 completed."

»Read more
  Friday, 11 Oct 2013 | 7:03 AM ET

Bernanke likelier to hike QE than to taper: SocGen

Posted By: Alex Rosenberg

Fed Chairman Ben Bernanke will not taper the Fed's bond buying before his term ends in January, says the head of U.S. rates strategy at Societe Generale. In fact, Mary Beth Fisher says, the Fed is more likely to increase its quantitative easing program than to decrease it.

And it could all come down to internal politics, Fisher said Thursday on CNBC's "Futures Now."

"I think Bernanke was a little bit more moderate than [Janet] Yellen and [William] Dudley and [Charles] Evans and clearly [James] Bullard in this situation, with inflation very low," Fisher said, referring to other members of the Federal Open Market Committee. Fisher finds it unlikely that Bernanke would "start tapering when he knows that that core of the committee, whose new leader was about to come out of it, were against the idea."

(Read more: Why the Fed backed away from tapering: Jon Hilsenrath)

In fact, the strategist suggests that Fed Vice Chair Yellen's then-impending nomination for Fed chair could have been behind the Fed's decision not taper in September, which took markets by surprise.

»Read more
  Wednesday, 9 Oct 2013 | 3:10 PM ET

Yellen's No. 1 theory: Badly paid don't work hard

Posted By: Alex Rosenberg
Joshua Roberts | Bloomberg | Getty Images

President Barack Obama's choice of Janet Yellen to head the Federal Reserve was surely bolstered by the fact that her concerns about unemployment outweigh her concerns about inflation. It must have gratified him, then, to learn that her most famous theory attempts to pinpoint the specific cause behind unemployment.

Co-written with her husband, Nobel-winning economist George Akerlof, Yellen's most widely cited paper is borne out of a simple premise: "if people do not get what they think they deserve, they get angry." Yellen and Akerlof go on to argue that workers who receive less than what they perceive to be a fair wage will purposely work less hard as a way to take revenge on their employer. And the worse they are paid, the less hard they will work. Or, as the paper puts it, "workers proportionally withdraw effort as their actual wage falls short of their fair wage."

In the 1990 paper, the economists christen their theory "the fair wage-effort hypothesis," and go on to explain why the phenomenon could explain unemployment.

(Read more: Stocks shrug off Yellen, so I'm getting short: Pro)

But before that is elucidated, it is important to understand that under the admittedly "rudimentary model" used by these economists, unemployment is a bit of a riddle. After all, if the cost of hiring a worker is greater than the value that worker adds, then firms will hire no one.

In that scenario, "the demand for labor is zero, and the unemployment rate is unity," (meaning one, or 100 percent). On the other hand, if there is unemployment, then a given firm could "set its wage at any level." In that case, a given firm would choose a wage that maximizes value—and once they do so, "every firm should hire an infinite amount of labor," which would solve the problem of unemployment.

However, Akerlof and Yellen submit that since people do better work when paid more, firms pay workers a wage that workers consider fair. And since this "fair wage" is higher than the "market-clearing wage" that would lead to an "excess demand for labor," unemployment results. In this way, "this hypothesis explains the existence of unemployment," the economists declare.

That paper, entitled "The Fair-Wage Effort Hypothesis and Unemployment," has been cited in more than 300 academic articles, and has had a huge impact on the field of economics. "It's a very influential paper," said economics professor John Burger of Loyola University Maryland, who cited it in a recent paper of his own.

»Read more

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