April 27, 2010 10:09 AM - The European Central Bank may soon have to invoke emergency powers to prevent the disintegration of southern European bond markets. Read the full article at the Telegraph......
View the original post at jsmineset.com... April 27, 2010 10:12 AM Dear CIGAs, Market moving news today was the downgrade of Portugal's debt rating by S&P from "A" to "A-." That sent the Euro tumbling back down after it looked as if it might have been making a short term bottom on fading Greece concerns. Voila! To add insult to injury, they also cut Greece's sovereign credit ratings to junk level and the "fade" on Greece quickly morphed into a panic! That sent global equity markets into a tizzy and down they all went with bonds shooting sharply higher as money was quickly sucked out of equities and jammed into "safe haven" bonds. The result – safe haven flows on the Continent into gold which continues to display strong buying interest on dips in price in Euro terms. This strength is feeding directly into Dollar based gold buying allowing gold bulls to mount a run into the bullion bank resistance line just above the $1162 level. As expected, they are fighting like hell to try t...
View the original post at jsmineset.com... April 27, 2010 10:40 AM Dear CIGAs, The huge increase in earnings is amazing now that the stupid short of gold OTC derivatives have been covered. I suspect the next numbers will show a significant decline in the cost of production. GAAP requires that derivative losses be charged along with hefty administrative costs to the specific project. It amounts to digging a hole in somebody else’s country and not sharing a meaningful amount or paying any taxes in that country even though you export a billion dollars worth of gold as an industry. That worked with crooked governments where leaders took chump change funds for themselves. It does not work with an honest government seeking the best for their country. The producers in Africa that practice this need to reconsider their colonialist approach. Amazing how producers are having a huge bounce in earning now that the dumb short of gold OTC derivatives have been covered. I suspect the next...
View the original post at jsmineset.com... April 27, 2010 01:24 PM Hi Jim, The Gold Currency Index closed sharply higher today, breaking out to a new all-time high. Although gold in US dollar terms does not yet reflect it, gold as an international currency is now trading at a new high for the secular bull market from 2001. The next technical objective of this move would be a strong weekly close on Friday, as that would confirm the recent long-term breakout on the weekly chart. Technical indicators on the daily and weekly charts are becoming increasingly bullish, so a continuation of this rally is likely. Best, CIGA Erik Prometheus Market Insight [URL]http://www.prometheusmi.com[/URL] ...
View the original post at jsmineset.com... April 27, 2010 05:53 PM Thought For The Day: Problems anywhere are now being reflected in the physical gold market that seems to have gained power over the paper gold market. This development makes a new high in the price of gold certain. Jim Sinclair’s Commentary Keep your eyes on the golden ball. Do not let yourself get derailed by the EU problems. Any fear of failure of debt anywhere increases gold buying. Jim Sinclair’s Commentary It is coming here in the US. The EU is the straw man Banks Bet Against U.S. Cities, States First Posted: 04-27-10 01:53 PM | Updated: 04-27-10 03:01 PM Amidst growing pessimism about the financial condition of U.S. cities and states, investors are increasingly buying financial instruments that essentially allow them to short sell – or bet against – cities and states, says a Wall Street Journal report. Offered by banks like JP Morgan, Bank of...
Aden Article By Mary Anne & Pamela Aden April 26, 2010 Courtesy of www.adenforecast.com This month’s jump up in precious metals, resources and oil reinforces that the lows in February were likely the lows for the downward correction. For now, the second quarter is off to a good start. The fact that gold’s decline was mild (down 13½%) is saying that the underlying bull market is strong and solid. You should now have your positions bought and in place, waiting for the bull market to further unfold. Platinum and palladium have been strong, reaching new highs and they seem to be leading gold, silver and the metals shares in another leg up in the bull market. In fact, the new highs in many commodities reinforces this. BIG PICTURE INVESTING BEST Many of you know the importance we place on the big picture. The big picture is most important, and knowing where the mega and major trends lie is a key to good investing. Our main goal has always been to invest...
I had gradually reset upward the Minimum Threshold Value knobs of the Mogambo Fed Credit Alert System since things started getting whacky and it kept waking me up, alarm bells going "clang, clang, clang" in my ears, depriving me of sleep, but also from the lack of sleep caused by shutting one's eyes and seeing the sheer horror of what will happen as a result of the Federal Reserve creating So Freaking Much (FFM) money. So, with the higher thresholds, I awake refreshed, and awakened only by the sounds of distant thunder where other people are getting the economic hell whacked out of them because central banks are creating so much more money to facilitate more government deficit-spending Around The Freaking World (ATFW). Even so, it was not encouraging to see that Federal Reserve Credit expanded $8 billion last week, taking us to an astounding $2.3 trillion, or that Total Fed Credit has increased $77.8 billion so far this year, which is not only a terrifying 12% when annualized, but is...
The following is automatically syndicated from Grandich's blog. You can view the original post here April 27, 2010 11:15 AM While it’s after market trading, gold is currently trading above key resistance around $1,165. As noted last evening, a weekly close above that resistance can set us up for a run to the old highs around $1,125. Grandich, Murphy and Sinclair carrying you know who! [url]http://www.grandich.com/[/url] grandich.com...
Market Ticker - Karl Denninger View original article April 27, 2010 07:10 AM You have to love this sort of utter claptrap... [INDENT]"Achieving long-term fiscal sustainability will be difficult, but the costs of failing to do so could be very high," Bernanke said in remarks prepared for a speech today to a White House commission on the budget deficit. "Increasing levels of government debt relative to the size of the economy can lead to higher interest rates, which inhibit capital formation and productivity growth -- and might even put the current economic recovery at risk." [/INDENT]Really Ben? We need to review a few graphs again. Let's start with this one: This is the true deficit, measured simply by the amount of Treasury debt (including intergovernmental games) outstanding. Of note is that it has never decreased materially since 2001. Why is this important? Because every dollar that the government borrows and spends is one dollar that pulls forward demand from ...
The following is automatically syndicated from Grandich's blog. You can view the original post here April 27, 2010 05:35 AM U.S. Stock Market – This is as good as time as any for me to reflect back on what I've said since the DJIA made an all-time high in October 2007 and what has actually taken place. Just a couple days after that all-time high, I wrote it was not only time to sell all stocks except those related to precious metals but also time to actually short the stock market. The results were the worst stock market decline in the modern era. Then, just a day before the ultimate low, I wrote I was removing my bear suit and looking for the mother of all bear market rallies. Shocking as it was, I even went so far as to recommend stocks like Microsoft and Intel (Forgive me Father, for I have sinned). While many prominent bears have been skinned by remaining bearish or becoming bearish through this rally, I've thankfully refrained from putting my bear suit back on again (despite a...
Well, Monday was a yawner in the gold market. Volume was extremely light... and even though the dollar sold off about 50 basis points yesterday, there was no sign of it the gold price, as gold lost five bucks from Friday's close. Silver had a slight upward price bias until exactly 9:00 a.m. in London trading... and from that point these gains, such as they were, got whittled away and silver closed exactly unchanged from Friday... right to the penny. As I mentioned in my brief gold commentary above, the dollar lost about 50 basis points on Monday... with most of the losses coming between 10:00 a.m. and 5:00 p.m. Eastern time. It mattered not one little bit to the price of either silver or gold. The HUI pretty much reflected the gold price action yesterday and closed down a smallish 0.27%. Nothing to see here, folks. Please move along. Well, the open interest numbers for Friday's big gains in both gold and silver were a surprise... as the open ...
Platoplubius has the video at Raging Debate.com of William K. Black's testimony before the House Committee on Financial Services on April 20 . This testimony was presented from a 24 page document submitted to the committee, which was discussed here. Black's statement to the committee took 8 minutes. During the last two minutes the chair's gavel can be heard pounding in the background as an attempt was made to hold Mr. Black to a brief time limit. Prof. Black (University of Missouri Kansas City) was a leading regulator in resolving the Savings & Loan crisis from 1986 to 1995. He is blowing the whistle on one of the biggest frauds committed in the credit bubble and exposing what amounted to a cover up by the Federal Reserve Board and the Federal Reserve Bank of New York. And an imperious chair is pounding a gavel! [ame]http://www.youtube.com/watch?v=3-HTylLzXu8[/ame] Watch this video and decide for yourself if you think the House Committee on Financial Services has a...
The latest research white paper from First American CoreLogic has run simulations for the housing market under two scenarios: (1) the latest federal tax credit program for home purchase (ends Friday) is the last and other government programs, aimed at slowing foreclosure and keeping mortgage rates low, end; and (2) another tax credit program follows, along with continuation of housing progams such as HAMP, HARF and HAFA (see notes at end of article) as well as Fed support for the mortgage securitization market. Here is a summary of their conclusions:[INDENT]1. During the first thirteen months of the Federal Housing Stimulus programs, home sales and home prices stabilized. 2. It is likely that the collective set of federal programs, including the home buyer tax credit, Federal Reserve MBS purchases, and Federal foreclosure prevention programs (HAMP, HARP, HAFA), contributed to the housing market stabilization. 3. Under a simulation scenario of extended Federal suppo...
London Gold Market Report from Adrian Ash BullionVault 08:30 ET, Tues 27 April Gold & Silver "No More Than Buffeted" by Rising Dollar as Greek Contagion Spreads THE PRICE OF GOLD slipped below $1150 an ounce on Tuesday morning in London's wholesale market, dropping 0.3% from Monday's finish as the US Dollar rose and world stock markets fell once again. "Contagion" fears over Greek government debt continued "spreading quite rapidly to Portugal, Spain, Ireland and Italy," said one credit strategist. "This is a consolidation of Europe's walls, the walls of the Euro," complained Italy's foreign minister, Franco Frattini of Germany's stance. "It's a rescue for all of us." Gold priced in Euros held in a tight range around €27,800 per kilo – early April's then-record high, which was broken on Monday. Two-year Greek bond yields rose to 14% this morning, pushing further above "high risk" government debt such as Pakistan's and offering well over 4.5 times' c...
Ralph Aldis is a portfolio manager at U.S. Global Investors, a San Antonio-based mutual fund and hedge fund manager specializing in natural resources, emerging markets and global infrastructure. He co-manages two precious-metals funds, including the World Precious Minerals Fund (UNWPX), the gold sector’s top-performing fund in 2009, according to Lipper (the second time in four years that the fund has achieved that distinction).
After a 10-year period as research director for U.S. Global, Ralph worked as an investment analyst for Eisner Securities before rejoining U.S. Global as a senior mining analyst in 2001.
All the precious metals are behaving extremely well in the face of a stronger dollar; the standout player is Palladium. Palladium has refused to buckle under the face of a stronger dollar and instead continues to put in a series of new highs. This is what a true bull market looks like.
Gold has refused to put in a new 6 month low even though the dollar has gone on to put in series of new all time highs. This action suggests that once this consolidation/corrective phase is over, the odds of the entire precious metals sector exploding upwards are rather high.
The next phase of the global debt crisis could be on the horizon, if Euro-zone politicians fail to take swift action, and prevent Athens from defaulting on its debts. German banks have $330-billion of loan exposure to Greece, Portugal, and ... Read More...
In "Face-Off" my mission is identifying and writing about the best sources on a topic. I seek out expertise and explain the arguments. This is in sharp contrast to most others who purport to be experts on nearly everything. By comparison, my claim is quite modest!
Background: The Fed Ends Purchases of Mortgage Securities
Gold popped up 1.5% while commodities lost about 2%, breaking a pattern of correlation in which gold traded like any other commodity. One session doesn’t make a trend, to be sure, but if the central banks are flooding the world with currency to support a massive bubble in government debt, the possibility of a portfolio shift out of currencies into gold has to be considered. And if this happens, gold (as I’ve said any number of times) has no natural ceiling.
What will China do? The Chinese got burned on subprime and again on PIIGS debt. They stopped accumulating US Treasuries months ago, and have no reason to buy Bunds given the misery of the prospects for the euro. Note from the table below (click to enlarge) that foreign official purchases of Treasuries have been negligible in recent months.
As Congress looks to pass a financial overhaul bill to prevent a second coming of the Troubled Asset Relief Program and another financial crisis, one of the biggest winners are holders of physical precious metals. Language in the bill meant to reduce the volume of the derivatives market could send the price of physical metals soaring.
I can now add to the long list of reasons I won’t let my kids watch C-SPAN the following: those Senators are nasty!
Carl Levin chose to emphasize the fact that Goldman (GS) traders referred to the Abacus deal in internal emails as a “sh*tty deal,” hammering that phrase over and over. I suppose you can do that on cable TV. The Goldman guys sat there looking cool under pressure (well, they should, they’re traders and they’ve heard lots worse on the Goldman floor I assure you), but I suspect that those folks who wondered whether the SEC really had a case against Goldman are now wondering how many other emails like that there are. Part of what drove the post-equity-bubble research settlements after 2000 was the discovery of internal emails showing that research was saying one thing when they really felt another.
Much has been made in recent months of the sovereign crisis facing a number of European countries, collectively referred to as the PIIGS (Portugal, Ireland, Italy, Greece, and Spain, respectively). These countries share similar financial characteristics in that they maintain significant budget deficits as a percentage of GDP, high debt to GDP, and generally high unemployment relative to the broader EU27. In addition, the PIIGS, due in part to structural problems with their economies that have been ignored, have suffered severe declines in GDP from peak to trough. Another component related to the PIIGS' structural employment issues is that these countries also have high labor costs relative to EU27 behemoths such as Germany, which makes it very difficult for these countries to aggressively turn their economies around.
Greece has captured the majority of headlines due to the refinancing hurdles it faces in May, when roughly €10B comes due. Greece also has the most severe budget deficit of its PIIGS compatriots, with its 2009 budget deficit coming in at nearly 13%[1]. These issues have led investors to spurn Greek bonds, resulting in 10-year Greek bonds trading over 400 basis points relative to 10-year German bonds[2]. As the chart below demonstrates, Greece is the headline act right now but other PIIGS, as well as the UK, could be poised to experience an uptick in yields.
Yes, you read that correctly! Greece killed its own banks. You see, many knew as far back as January (if not last year) that Greece would have a significant problem floating its debt. As a safeguard, they had their banks purchase a large amount of their debt offerings which gave the perception of much stronger demand than what I believe was actually in the market. So, what happens when these relatively small banks gobble up all of this debt that is summarily downgraded 15 ways from Idaho.
“S&P cut Greece’s ratings to junk status, saying the country’s policy options are narrowing as it tries to cut its large budget deficit. The news, combined with an S&P downgrade of Portugal, pushed down the euro to $1.3269, hit U.S. stocks and sent Treasury prices higher”.
April 28 (Bloomberg) — Holders of Greek bonds may lose as much as 200 billion euros ($265 billion) should the government default, according to Standard & Poor’s.
The ratings firm cut Greece three steps yesterday to BB+, or below investment grade, and said bondholders may recover only 30 percent and 50 percent for their investments if the nation fails to make debt payments. Europe’s most-indebted country relative to the size of its economy has about 296 billion euros of bonds outstanding, data compiled by Bloomberg show.
The downgrade to junk status led investors to dump Greece’s bonds, driving yields on two-year notes to as high as 19 percent from 4.6 percent a month ago as concern deepened the nation may delay or reduce debt payments. Prime Minister George Papandreou is grappling with a budget deficit of almost 14 percent of gross domestic product.
“It’s now not just market sentiment, but a top rating agency sees Greek paper as junk,” said Padhraic Garvey, head of investment-grade strategy at ING Groep NV in Amsterdam.
Before yesterday, Greece’s bonds had lost about 17 percent this year, according to Bloomberg/EFFAS indexes. The 4.3 percent security due March 2012 fell 6.54, or 65.4 euros per 1,000-euro face amount, to 78.32.
…
S&P indicated the cuts, which may force investors who are prevented from owning anything but investment-grade rated bonds to sell, may not be over, assigning Greece a “negative” outlook.
“The downgrade results from our updated assessment of the political, economic, and budgetary challenges that the Greek government faces in its efforts to put the public debt burden onto a sustained downward trajectory,” S&P credit analyst Marko Mrsnik said in a statement.
Credit-Default Swaps
Traders of derivatives are betting on a greater chance that Greece fails to meet its debt payments.
Credit-default swaps on Greek government bonds climbed 111 basis points to 821 basis points yesterday, according to CMA DataVision. Only contracts tied to Venezuela and Argentina debt trade at higher levels, according to Bloomberg data. Venezuela is at about 846 basis points and Argentina is at about 844, Bloomberg data show.
Just minutes before lowering Greece’s ratings, S&P cut Portugal to A- from A+. Yields on Portugal’s two-year note yields jumped 112 basis points to 5.31 percent, while credit- default swaps on the nation’s debt rose 54 basis points to 365. The downgrades may force banks to boost the amount of capital they are required to hold against bets on sovereign debt, said Brian Yelvington, head of fixed-income strategy at broker-dealer Knight Libertas LLC in Greenwich, Connecticut.
While bank capital rules give a risk weighting of zero percent for government debt rated AA- or higher, it jumps to 50 percent for debt graded BBB+ to BBB- on the S&P scale and 100 percent for BB+ to B-.
“These downgrades are going to cause people to increase their risk weightings,” Yelvington said.
Well, the answer is…. Insolvency! The gorging on quickly to be devalued debt was the absolutely last thing the Greek banks needed as they were suffering from a classic run on the bank due to deposits being pulled out at a record pace. So assuming the aforementioned drain on liquidity from a bank run (mitigated in part or in full by support from the ECB), imagine what happens when a very significant portion of your bond portfolio performs as follows (please note that these numbers were drawn before the bond market route of the 27th)…
The same hypothetical leveraged positions expressed as a percentage gain or loss…
When I first started writing this post this morning, the only other bond markets getting hit were Portugal’s. After the aforementioned downgraded, I would assume we can expect significantly more activity. As you can imagine, those holding these bonds on a leveraged basis (basically any bank that holds the bonds) has gotten literally toasted. We have discovered several entities that are flushed with sovereign debt and I am turning significantly more bearish against them. Subscribers, please reference the following:
To date, my work both free and particularly the subscription work, has shown signifcant returns. I am quite confident that the thesis behind the Pan-European Sovereign Debt Crisis research is still quite valid and has a very long run ahead of it. Let’s look at one of the main Greek bank shorts that we went bearish on in January:
Greek equities were hammered Tuesday on the heels of its debt being downgraded by S&P.
The ASE General Index was down an even 6.0%, closing at 1,696.68 on a heavy 75 million share volume. The nadir at 1,671, was 120 points lower than the previous yearly low. It looks like capitulation selling and normally I would be buying such a meltdown. But not in this case. See my article "Greece Will Have the Last Laugh". I warned this would happen back in February.
In yesterday's senate hearing, there was a question how a portfolio of BBB rated securities can generate a AAA rated security. Ex-Goldman (GS) exec Dan Sparks basically said it was due to diversification. This is an incomplete answer. Diversification alone is insufficient. You also need to add an equity tranche, a first-loss position that is breached only in specified probabilities. This is modeled based on historical loss rates for the rated collateral, and the minimum amount of equity needed to imply the Senior securities have expected loss rates consistent with AAA ratings (expected loss is the expected default rate times the loss in event of default). This is modeled using Monte Carlo methods because these structures have waterfalls where reserves build-up and are paid down, so they don't assume 'gaussian' distributions.
So, turning B rated bonds into AAA rated bonds, involves both diversification and equity. You can't turn $100 worth of BBB bonds into $100 worth of AAA bonds. You turn it into $95 worth of AAA bonds (or something, depending on the time horizon).
Yesterday was easily the most boring day of the year, with congressmen asking endless ridiculous questions of the vampire squid’s senior management. So I opted instead to watch Fight Club for the umpteenth time, a film that is overflowing with deep meaning for me. I studied karate in Japan for ten years, the goju-ryu school. Since I was by far the largest student, I was always matched with the best black belt to make things even. Half the Japanese students then were yakuza, and the other half right wing nationalists, and there were two atomic bombs and that WWII thing to atone for. That meant getting the crap beat out of me every day for a decade, and half my front teeth still reside in Tokyo. Boy, can payback be a bitch. For my efforts, I am getting early onset arthritis in my knuckles.
While watching Tyler Durden beat himself up, I clicked around my chart software, noticing that the California state bond funds I recommended last fall were exploding to the upside (click here for the call at http://www.madhedgefundtrader.com/November_18__2009.html ). Controller, John Chiang, says the Golden State’s revenues are suddenly running far ahead of even the most optimistic expectations, suggesting that the corner has been tuned on its seemingly endless fiscal crisis.
March receipts came in $356 million above expectations, pushing the general fund revenues ahead of budget by a total $2.3 billion in the current fiscal year. Corporate income taxes were the main cash cow, no doubt powered by a booming technology sector, running 15.8% ahead of forecast.
The Land of Fruits and Nuts is far from out of the woods. There is still a daunting $22.6 billion budget deficit to deal with, sales tax receipts are still down, and the Bureau of Labor Statistics says there are 600,000 fewer employed than a year ago. Personal income tax receipts have also shrunk, suggesting that investors are sitting on longs and piling up big unrealized capital gains for the monstrous stock market rally.
Of course, it will be a long time before the legions of laid off teachers, firemen and policemen are hired back. The state is going to have to raise property taxes and unload a few thousand prison guards before that happens.
With California in the heat of the Republican primary elections for governor, this is good news no one seems to want to talk about. It looked like former EBay CEO Meg Whitman was going to bury her hapless opponent, Steve Poizner, with an onslaught of attack ads financed by her own personal fortune, claiming he is “more liberal than he says he is.” I’m amazed he hasn’t yet been arrested for cruelty to animals. But then the year Whitman spent as a director of Goldman Sachs (GS) has come back to haunt her, and now the campaign is a tossup. Democratic candidate Jerry Brown, ironically, has also been tarred with ties to the vampire squid. But at least the Moonbeam Governor has no opposition to worry about.
After a long famine, the state’s finances may finally be putting on some muscle. It is not too late to profit from this stealth recovery by picking up some municipal bond funds like (VCV), (NCP), and the (NVX). If rebounding revenues are saving California, you can bet other big deficit states like New York and Illinois are on the mend as well. With taxes about to go up a lot, everywhere, tax free municipal bonds are about to become more valuable.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on the “Today’s Radio Show” menu tab on the left on my home page.
S&P downgrades Portugal citing debt worries. Standard & Poor's on Tuesday downgraded Portugal's ratings citing concerns about its ability to deal with high debt levels given its weak economic outlook. After Greece now it's the turn of Portugal.
With Tuesday’s downgrade of Greece’s credit rating into junk territory by Standard & Poor’s, ripples were felt globally, as equity indices tumbled from the latest multi-day rally. This weakening Euro trend has continued for some time now, but as a Greek debt resolution loses legitimacy and as shorts pounce, it’s unlikely there will be a sharp reversal in this trend. In essence, momentum may be building for a more pronounced slide as events continue to unfold and more Euro zone countries are subject to speculative betting.
How to Profit from the Greek Debacle
A few investment methods for investors looking to either hedge exposure to European holdings or just speculate on further deterioration are as follows:
Gold traded mostly slightly higher in Asia before it fell back off in London to see a loss of $7.45 at as low as $1146.00 by about 9AM EST and then shot to a new session high of $1164.40 by late morning in New York to see a gain of $10.95, but it then fell back off a bit into the close and ended with a gain of 0.7%. Silver fell to $18.06 and rose to $18.397 before it fell off rather markedly in the last couple of hours of trade and ended near its late session low of $18.025 with a loss of 1.09%. Both metals have risen in after hours access trade and the time of writing.
Here at Casey Research, we eagerly awaited the release of quarterly reports from the companies in our favorite sector. Why? The gold price was substantially higher last quarter than during the comparable meltdown quarter of 2008, so we were anxious to find out if it would lead to a spike in profits.
Gold and silver producers posted substantially higher net profits, and yes, much of it due to higher metals prices. But amazing to many, higher profits did not lead to higher - or at least not significantly higher - stock prices.
While most saw their stocks rise the day of their respective announcements, some actually fell if gold or the broader markets were down on the day. And they certainly didn't jump like you might expect when "soaring profits" splashed the headlines of their press releases.
What gives?
We have some answers straight ahead, including a big fat clue as to when gold stocks will take off and give us those "magical" price levels we think are coming.
Gold Stocks Are Still Going to Take Off, Right?
We think that at some point the public is destined to participate in precious metals stocks, and when they do, we'll see volumes jump and share prices take off.
But for now, gold stocks are playing follow the leader...
..rising and declining in tandem with the S&P since last April. So, until gold stocks separate from the overall market, we should anticipate they'll tag along if the markets slide. And we think the path of least resistance for the stock market is down, not up, so caution is warranted about going overweight our stocks.
But just as we showed with gold last month, gold stocks will similarly propel higher when the general public crowds in, regardless of what the markets are doing. Here's what gold stocks did in the last great bull market, compared to the S&P.
As measured by the Barron's Gold Mining Index (a good substitute for the HUI that didn't exist), gold stocks rose 652% during the 1970s (through January 1980), while the S&P returned a wimpy 22%. The action in the '70s was definitely in gold and gold stocks, despite two recessions that decade, and we think a repeat is in the cards.
When the masses finally wake up, it's highly probable our returns will match the chart above or the late '90s surge in Internet stocks.
Is Now a Good Time to Buy?
As investors, our goal is to get positioned in the best stocks at the best price. And buying low assures us of more profit when we eventually sell. So, are gold stocks "low" right now?
We have a couple clues to help answer that, with gold itself offering the most important hint. Let's compare how gold stocks are performing in relation to gold to see if they're overvalued or undervalued or somewhere in between.
The chart shows that gold stocks, as measured by the HUI Gold Bugs Index, outperformed gold until 2008. Since then, gold stocks have underperformed gold by a fairly wide margin.
This gold-stock-to-gold ratio tells us that in our bull market, gold stocks are currently undervalued relative to the gold price. This doesn't mean they can't get cheaper, of course, but it does signal they represent good value and that compared to their underlying asset, there's lots of room to the upside.
So, if you have a long-term perspective and the patience to wait until gold stocks begin outperforming gold again, today's prices are good prices.
So, do we buy? The answer depends on your current exposure to gold stocks, how much gold and cash you have, and your outlook. If you own equities exceeding one-third of your total investable assets, we wouldn't rush to buy. If you have limited (or no) exposure and a patient mindset to see you through until the big payday, even enduring temporarily lower prices along the way, then buying some now is probably a good move. If you have very little in the way of savings and gold, we'd put money there first before committing a big chunk to gold stocks.
Basically, the larger your stable of gold stocks, the more stubborn you should be about price. And we wouldn't go "all in" just yet. Your risk in loading up now is if markets were to take another nosedive. But if you're light on stocks, adding some of the best of the best at this time should work out well, as long as you don't panic into selling on general market weakness.
Just Tell Me When!
The #1 indicator that will tell us when gold stocks will take off has nothing to do with charts and is something you can monitor yourself: it will be when your neighbors and co-workers begin to express curiosity. You obviously want to be invested before them, but that's when things will start to get exciting.
So when might "gold fever" strike your neighbor? History holds the best clue:
In the 1970's bull market, gold stocks began their big ascent when the gold price hit about $450/ounce. Adjusted for inflation, that would equal roughly $1,340 today. So, when we see gold rise decisively above $1,300 and stay there, that just might be the trigger that spurs the interest of the masses in gold stocks. That's not a prediction, but it does give us an idea of what to look for.
Casey Research chief economist Bud Conrad was right when he called for gold breaking through the $1,150 barrier in 2009 - and now he's calling for gold to break over $1,450 by year's end. Weighing in as well, Doug Casey himself sees precious metals as the only asset class worth buying now, and gold stocks as being the best way to add speculative leverage to those investments.
Exciting? You bet. We're convinced that, sooner or later, higher prices are ahead for the best gold- and silver-producing companies, along with the "magical" levels that can happen in a mania. So, while we encourage caution, we also encourage selective participation so you don't get left behind. Waiting for the "perfect" time to buy is an exercise in self-deception; nobody can time the market.
Let's be honest: no one can guarantee when or if a gold mania will happen. But all of our research points to higher prices for gold (and silver), so we remain confident we're in the right sector. And we can make money before the mania gets here.
Sunday morning, the Padre gave a mass at the little chapel next to the school. Then, he came over and blessed the new backhoe:
"Lord, we ask that this machine may help make the farm more productive and may make it a better place to live and work for all who live here."
"Amen," we said.
Local priests are in short supply. Ours is an intelligent man with thinning hair, who came from Spain to minister to the poor of the Andes. He and another priest take care of 22 different churches, covering a region bigger than the state of Rhode Island. Once he left on Sunday, he could not come back to bury Jorge's father. So, blessing of the clergy was performed in Salta, before the journey to our ranch began.
Javier caught on quickly. After a few minutes of training, he could operate the backhoe better than your editor. There are some things economists can do well. At least, in theory. In practice, we've never found anything.
Backhoes were not designed for intellectuals. By the time we have calculated the angle of attack, a good operator has already dug two holes. Maybe most things in life are like that - better done by instinct than by calculation.
Javier turned off the motor and came down from the cab. We were giving him instructions in maintenance - 'graselo cada dia, sin excepcion' - then we heard the deep, full-throated noise. It was an old Chevy truck coming up the hill.
"That must be Jorge, with his father's body," we said to Javier.
"Mi abuelo [my grandfather]," said Javier. The cowboy's face was as hard and immobile as the stone mountains behind him. It was not an unfriendly face. But it was not a face you'd like to see in a bar fight, either, at least not unless he was on your side.
The old truck usually ran on bottled gas. But it could only get gasoline at the station in Molinos...so it switched back to gasoline, which caused it to run poorly, occasionally coughing and sputtering.
Still, it made the trip from Molinos in an hour and a half, across the desert to our ranch, with the coffin of Jorge's father in the back. Along with it came four other dusty pickups - each one carrying more of Jorge's family. Brothers and sisters, nieces and nephews...all came back to the cradle of the family itself, where Agostin, father of Jorge, Evo, Rosa, Candelaria, Josephina and Fermina, was born.
The body already lay in the chapel, in front of the altar, when we got there. Candles were lit on all sides. A few people kneeled, praying in their pews. Others milled around outside.
We shook hands with the men standing outside our church. The women inclined their cheeks upward for a kiss. All were shy. Many of them had never had met a real economist; probably, they never will. Then, we went inside, took off our hat, stood before the closed casket and made the sign of the cross on our chest and went back outside to await events.
Soon after, Jorge's wife took charge.
"In the name of the Father, the Son, and the Holy Ghost," she began. "We are gathered here to say goodbye to Agostin... He has taken a road we all must take. Santa Maria, Mother of God, Pray for Us."
"Santa Maria, Madre de Dios, Ruege Para Nosotros....
"Santa Maria, Madre de Dios, Ruege Para Nosotros...
"Santa Maria, Madre de Dios, Ruege Para Nosotros..."
Once the litany began, it seemed like it would never stop. Maria called upon the saints, by name...and asked for the help of the angels and Heaven itself...counting out the beads of her rosary...reaching out to the Kingdom of God and imploring its denizens to welcome her father-in- law, to take him up into their celestial hotel and make him feel like he belonged there. As for those left still alive, she asked for help for them too. Would God give them a little help...a raincheck...she asked...a reservation for the future, for the time when we too must join Agostin...and all the saints...in our eternal home.
When the litany ended, the choir assembled. Gustavo led it in a death chant...a simple tune sung over and over, with old women keening in the background. The effect was unlike any church music we had ever heard. There were no musical instruments in the chapel, but the keening filled the air, like an organ or bagpipes. It was soothing and melodic...but deeply sad...
"It's the music the Indians sang when they came down from the mountains," Maria explained. "It's called a baguala."
Each person in the church then stood in line to take communion...and touched the casket on his way back to his seat, some merely placing their hands on it for a moment, others making the sign of the cross.
When the last of the Eucharist celebrants had sat down, Jorge's wife blew out the candles, while Jorge, his brothers and nephews moved up to the front of the church. They picked up the coffin, and put it back onto the pick-up truck. The rest of us got in our trucks too, in order to follow the procession out to the graveyard.
Across an arroyo from the chapel is an old adobe house. It was the house where Agostin lived as a child and where Javier lives now. The procession drove to the house; the casket was taken out of the back of the pickup and carried around the house. Then, it went back in the truck for the trip to its final resting place.
About a half mile from the house, out on the range by itself, is the graveyard. It is a giant square, surrounded by stone walls, about 6 feet high, so remote that life above ground is almost as peaceful as it is below it.
Here, in the high plains of Boot Hill, some 50 or so bodies lie unmolested by the living. Here, the dead are on their own...save when someone comes to join them. They enjoy their sleep without interruption - no lawnmowers and no Internet signal.
Some graves are marked by piles of rocks. Others by concrete tombstones. Still others only have a wooden cross to mark the spot. Some of the dead appear to have been forgotten completely. Other gravesites are garnished with a few faded, plastic flowers.
Off to the right, as we entered, was a pile of pick axes and a little farther was a hole, much deeper than we expected. It must have been hard work digging it.
"I guess the next one will be dug with the backhoe," we said to Calvert.
"I don't know. They might rather dig those graves by hand."
Jorge's wife spread a blanket on the bottom of the grave while Jorge and his kin attached ropes to the coffin. They then set the coffin on the top of the hole supported by a couple metal bars across the opening.
Again, mourners began their lament, while one by one the rest of the group, beginning with the closest family, approached the casket. Each one dipped a sprig of green leaves into holy water and made the sign of the cross on top of the casket.
Now that the body was closer to the grave, the keening grew louder and eyes grew redder. Some cried. Some merely looked blank and sorrowful.
When everyone had paid his last respects, a bent grey felt hat, the kind an old ranch hand might wear, was put on top of the coffin. Jorge and his brother pulled out the metal bars while other relatives held the ropes. Then, the body was lowered into the hole. When it came to rest on the bottom, they pulled up the ropes.
The wailing and keening continued. The relatives each took a hand of dirt and threw it on the coffin. Then, one of Jorge's sisters threw on some of his clothes. Another tossed a pack of cigarettes into the grave.
When the symbolic burial was over, three of the ranch hands, Natalio, Omar, and Juan, picked up shovels and began seriously filling the hole with dirt. A cloud of dust formed around them. Juan smoked a cigarette as he worked.
Soon, the grieving friends and family were beginning to drift away. Bottles of coca cola and orange soda came out. Anna, Juan's son, came over and offered us a cup of coke. Out of the corner of our eye, we noticed Javier, the toughest hombre in the Calchaqui Valley, wiping away a tear.
The CDS market, as always, is prophetic to the dot: after main deriskers in the past two weeks were Spain, Portugal and France, so far the spread blow out in these markets has materialized like a Swiss watch. Which is why Ambrose Evans-Pritchard better be looking at this week's DTCC data, because the credit market is flashing a bright red warning light over his favorite bankrupt country - the UK (incidentally, the week's largest net derisker, just after Goldman Sachs). Second in order of sovereign implosion - Ireland. The British Isles, at least according to CDS traders who time after time prove they have far more sense than their equity equivalents, are about to become a hotbed of credit activity, and not in a good way. The other countries that fill out the top 10 deriskers in the prior week: Brazil, Germany (yeah, failed auctions do that), Argentina (yeah, persistent threat of default does that too), Mexico (yeah, living next to a money printing terrorist does that), Ukraine, Korea, Belgium and China.
On the other end, the names with the most net notional reduction indicate that once again, nobody gives a rat's ass about Greece anymore (at least in derivatives... cash wishes it could say the same). Spain led the reriskers. After today's disclosure that the country is just over 20% done with funding its 2010 debt needs, this may change quite fast. The other countries in the group are irrelevant.
Full list. (we did not add the "stolen from ZH watermark" so please just quote us when you steal this, deal?)
Locusts...earthquakes...tornadoes... What next? Fire and Brimstone!
There's a plague of locusts eating crops in Australia...
Earthquakes are becoming more common...after devastating quakes hit Haiti and then Chili.
"We could definitely feel it in Buenos Aires," said our friends. "It was very unsettling. The heavy blinds we have up outside began smacking against the house as if there were a wind storm. But there wasn't any wind."
Then, a volcanic eruption in Iceland grounded air travelers between Europe and the US...
And now deadly tornadoes have ripped into the Southern US...and a "giant fireball" was spotted in the Midwest.
Is it the "end of time"?
Probably not.
At least, you're probably better off betting against it. That is, 9 times out of 10, time continues. Every time people think that something totally new has come along, it turns out that it's not so new after all.
Like all those goofballs who thought a "new paradigm" meant eternally rising stock market prices in '99...or real estate prices that went up forever in 2006.
You'd think these people would have learned their lesson when the crash/Great Recession of '07-'09 wiped out $30 trillion worth of nominal wealth. But they'd been exercising their optimism for so long that it's in pretty good shape. Now, comes the rebound and they're ready to flex their good-time muscles again.
The Los Angeles Times reports, for example, that people are "flipping houses in South LA again."
Emerging markets have soared - almost recovering all that was lost. And consumers, who had retreated from spending money once they realized they didn't have any, are once again on steroids - pumping up sales to give the impression of a healthy recovery.
And there's a report that the small fry are finally getting back into the stock market. After staying on the sidelines for the last two years, they're now getting up the confidence to tempt the fates. Good luck to them...
Of course, it's perfectly normal for people to believe the de- leveraging is over. Who wants to cut back? Who wants to accept a lower standard of living? Who wants to admit that he's been a fool? Instead, he'll tell himself:
"It'll all blow over..." "Things are back to normal..." "The feds have the situation under control..." "Now it's safe to get back into stocks..."
Meanwhile, the key indicators are still weak or undecided.
New jobless claims went up unexpectedly last week. The Baltic Dry index is still telling us that there is no genuine pick-up in world trade. The feds' new homeowner tax credit will expire soon - with property auctions and bank repossessions at record levels...and foreclosures taking their biggest jump in five years.
Robert Shiller warns that we should expect another dip in the housing market.
And the Fed itself tells us that it will keep its "extended period" of emergency low rates a while longer.
What is all this telling us?
That the Great Correction continues...and that there is far more danger on the downside than there is reward on the upside.
Barron's Big Money Poll tells us that bonds are the most detested asset class. Frankly, we don't like them either. But the Great Correction will eventually take a whack at stock prices...and real estate prices...and commodity prices...
..bonds could be the only major asset to escape!
The big money could be dead wrong...just as the small money is almost always wrong. Bonds might go up as the de-leveraging continues.
WAVERLY, Ohio — More than 1,200 jobs were being eliminated on Tuesday, after the Masco Cabinet Group announced it was closing its Hopewell Road facility.
The plant is the largest single employer in Pike County, 10TV News reported.
The company, based in Ann Arbor, Mich., said that it is phasing out the manufacture of its ready-to-assemble products.
The company manufactures KraftMaid, Merillat, and QualityCabinets brands and DeNova brand countertops.
The Waverly plant opened in 1987 and was purchased by Masco in 1999.
Masco has not identified a closing date but expects the facility to close in early 2011, according to a company news release.
Pike County has the sixth highest unemployment rate in the state, 10TV News reported.
Whether Greece's debt crisis ought to have any real affect on the share prices of Aussie banks and resource companies is debatable. What's not debateable is that stock markets all over the planet are selling off on the down-grading of sovereign debt in Greek and Portugal. The S&P was down 2.3% in the U.S, London down 2.6%, Germany's Dax down 2.73%, and in Lisbon the market sold off by 5.36%.
All of that was a bit predictable, given how far markets have come since last March without, we'd argue, much improvement in the debt picture that caused the whole GFC in the first place. What is persistently strange about these sell offs in European and emerging markets is how it causes a rally in the U.S. dollar and U.S. Treasury bonds, given how lousy America's fiscal position is.
But the bond market has ruled with the big thumbs down on Greek debt. In the last two weeks, the yield on 2-year Greek debt has more than doubled from 6.1% to 15.35%. This means the market is not confident Greece can meet its obligations and roll over new debt by May 19th. And the market is essentially rejecting the bailout/back stop offer engineered by the EU and the IMF.
The soaring bond yields are just another way of saying that investors now expect a restructuring of Greek debt which includes a default. Bond investors are not going to be made whole. But something will have to be better than nothing.
The fact that Greek trouble has spread to Portugal and many of the other fiscally-challenged European states shows what really needs restructuring-expectations on the level of social welfare the nation state can be expected to deliver without bankrupting an economy. But this is a larger issue than politicians have the stomach (and the intellect) to deal with.
So a great whirlpool of uncertainty now begins to swirl over who is going to pay for what, or whether it can be paid for at all. That is not good for investors in the short-term. But there IS one way in which it's useful. It's preview.
That is, the Greek problem is also a Euro problem. And the Euro problem is a paper money backed by nothing problem coupled with high levels of debt. You can see that the only resolution to a sovereign debt crisis is default of inflation. Because it does not control its own interest rates or money printing (monetary policy) the Greek government is at the mercy of the European Central Bank. And being genetically descended from Germany's Bundesbank, the ECB is not willing to print Euros in order to save Greece. Default remains.
The Federal Reserve, of course, CAN print as much as it would like. And this is why we firmly believe the resolution of America's own sovereign debt problem will be inflation. That's the investment scenario we're preparing for...a world awash in increasingly worthless paper claims on the full faith and credit of the United States government. But in the interim, the dollar is getting the 2008-like "flight to safety and liquidity" bid.
You may not believe this, but in the midst of the accelerating Greek crisis, it's not even the country that keeps us up at night. That distinction would have to go to China. Mind you we're not sharing the same bed with China. It's a big country. It wouldn't fit on our queen sized mattress.
But like it or not every Australian investors is in bed with China, or in a relationship if you prefer. And for the last ten years, that's been a very amicable relationship. And arguably, as big a story as the sovereign debt crisis is (because it impacts global capital flows, which highlights an Australian vulnerability to the rising cost of capital), what happens in China will have a longer-lasting effect on the Aussie share market and the Aussie economy.
Shanghai stocks fell 2.1%, according to Business week. "Concerns about government efforts to cool a housing price boom have hurt makers of building materials and construction-related machinery, said Liu Feng Feng, a strategist for Central China Securities in Shanghai."
This is the subject of a new report we've put together that you can read tomorrow. China has become a giant construction site where loose credit policies have unleashed a building boom that's fuelled demand for Aussie resources. When China's credit bubble pops, the real estate money machine will grind to a halt. And then?
It all depends on how much confidence you have in men to manipulate markets. It would be more than a little ironic if Beijing's central planners pop the bubble and unintentionally unleash a real estate collapse. But this is the trouble with thinking a small committee of decision makers can manage an economy of 1.3 billion people.
The problem, as Friedrich Hayek pointed out, is one of knowledge. There is just too much to know for so few people. How is any one group of people supposed to know what the idea price of money is, or where credit should be allocated and to whom? Those decisions are best left to individuals with local knowledge acting in their own best interests with transparent pricing information that actually reflects what people want and what they're willing to pay.
China can tax third homes on individuals and curb credit or it increase land supply to try to make home values appreciate more slowly. But its property market is fundamentally organised to maximise revenues for local government. It encourages speculation. And the bubble is already baked, full of Australian coking coal and iron ore and zinc and copper and coal.
It's the bursting of China's centrally planned bubble that looms largest for Aussie investors. So even if you get a relief rally after some transparently false resolution to the Greek crisis, you may want to consider a much bigger picture and a longer-term investment game plan. Stay tuned for that.
And here's a bonus thought for the day: what if the inevitable collapse of the social welfare state funding model leads people to change their primary loyalty from the State to something more local? For starters, it would mean, we reckon, that the centralising principle of the last 200 years of Western history (in commerce, politics, and living arrangements) may have reached its natural limits.
The centralising principle would reach those limits for various reasons. One is the inherent fragility of complex systems and their increasing vulnerability to systemic collapse. Globalisation and the division of labour on a global level creates tremendous complexity AND vulnerability.
Politically, the centralising principle, as emotionally successful as it has been in winning market share/votes (let us live at one another's expense) is being exposed as economically fraudulent (as well as morally wrong to coerce other people to your way of thinking through taxation). It's a nice idea, but it may be unaffordable without literally mortgaging the future or destroying our standard of living in the pursuit of a social welfare utopia.
Just to refresh, Robb defines a primary loyalty as "A connection to a non-state group that is greater than loyalty to a state. These loyalties include those to clan, religion, tribe, neighbourhood gang, etc. These loyalties are reciprocated through the delivery of political goods (by the group that the state cannot or will not deliver)."
In a prosperous liberal democratic state where people see justice as fair and view the burden of civilisation (taxes) as equitably shared, where corruption is not rife and opportunities exist for social and economic mobility, having your primary loyalty to an abstraction (the rule of law or the State) is no problem. It is the norm.
But when the State expands the promises it makes and then fails to deliver on more basic ones, people begin to question their primary loyalty. This doesn't mean they revolt. No one really wants to do that. You only do that when you have no recourse economically and no better prospects.
We reckon a retreat to a more local way of life is in the works. The rising cost of energy and capital will be one factor. And frankly, to use a Marxist term, people might feel less alienated from their labour and life if they felt more connected to their neighbours and their work. And that's more possible in a small, more sustainable resilient community than it is in an artificial mega-city of millions. But now we're just prattling on! Until tomorrow...
In the last 45 minutes of the testimony Josh Birnbaum (Co-head of the Structured Products Group (“SPG”) was asked a series of questions by Senator/Dr. Tom Coburn (R.Ok).
There was a document produced that was Josh’s year-end plea for bonus big bucks. A list of his accomplishments. Amongst the many swell things that Josh touted was his contribution to the accelerated use of the equities market in the SPG hedging and trading activity.
Bingo! Josh may have opened up to something that could blow up for Goldie.
Senator Coburn produced an internal Goldman report for the fall of 2007 that showed that Goldman had an open short on the stock of Bear Stearns. Coburn asked Josh if he was responsible for that short position.
After thumbing through the book Josh finds the report in question and looks back at the Senator, smiles, and says, “This is a firm wide report. I can’t determine if this is my department’s short position or not.”
Next Coburn asks, “How did you select the shorts you used?” Josh responded, “We had a macro view. I had a list of stocks that were correlated to the sub prime industry.”
For me this is a bit of a bombshell. It shouldn’t be. It was a perfect strategy for the sole reason that it worked. But consider the consequences.
In 2007 the SPG had gains from hedges of ~$3b and losses of ~$2b on write down of inventory. It was described that the hedges included (1) shorts on the ABX index (2) shorts on single name ABS (3) long CDS against a variety of single names and (4) they shorted common stock of companies that had a high beta to a downfall of the Sub-Prime/Alt.A market.
We know from the testimony Bear Stearns was on that “short” list. That entire list is public. I have not seen it so I will just guess that in the fall of 2007 GS was shorting the likes of New Century, WaMu, the mono lines, Countrywide, Bear Stearns, and Lehman. That list could have been broader; it might have included Fannie Mae and Freddie Mac, Citi, and BoA, even the likes of a Northern Rock or RBS.
One aspect of the collapse of 2008 was how destructive capital markets had become. The shorts pushed equities down so fast that managements and regulators lost control. The shorts were clearly predators. For me it was the shorts that destroyed the equity values. It was a near daily event.
My questions on this is (A) How much of this did Goldman do? (B) How much did the rest of the market do? (C) Did this exceptional demand for short interest in financial stocks accelerate the collapse of Bear, Lehman and all the others?
In the fall of 2007 the size of the Sub Prime and Alt.A market was many multiples of the market-cap of the financials that were the target of the short interest.
Essentially Goldman Sachs bought WaMu no-dock loans; against this they shorted Bear Stearns common. The hedge worked just fine. Unfortunately it cratered Bear Sterns and a few others and damn near took out the system.
As the broader disclosure of what happened in 2007-2008 (this ain’t stopping with Goldie) takes place we will see how much this predatory hedging actually upset the applecart. Its effect is unlikely to be zero.
I am conflicted on this. Hedging is only an option when selling can’t be done. Therefore hedging is integral to the capital market process. But there are degrees. I think that if one was long sub-prime ABS and hedged that risk with a short in the ABX index that is a commercial transaction and is part of risk management. However if this crosses over to where one could go long troubled mortgages and short the common stock of the Royal Bank of Scotland against it, I would say that is not a commercial hedge. I would call the later transaction a Prop Trade. It is a bet, not a customer transaction. I have no problem with prop trading. It should be funded with equity and there should be limitations. If that had been the case in 2007 that discipline would have constrained the growth of bad credit.
It is possible that the Goldman hedging strategy was predatory. It added to the systemic problems that later occurred. Possibly Senator Levin should ask a few questions on this line. I doubt that he will. I watched the proceedings and was convinced that the good Senator had no clue how things actually work.
Did the (admitted) shorting of BST in October, November and December by GS lead to the collapse in March?
Amid Push For Renewable Energy, Saudi Arabia Cautiously Turns Over Green Leaf
The promise of green energy has intrigued the Middle East, where concern about future reserves runs deep, but Saudi Arabia's recent plan for a multibillion-dollar investment in traditional oil projects underscores lingering concern about betting on renewables.
Riyadh plans to spend $170 billon over the next five years on energy and oil refining efforts; the country's state-owned oil company, Saudi Aramco, will bankroll little more than half this endeavor, according to the Saudi Gazette. The energy giant called it unrealistic for Saudi Arabia to plow into alternative energy sources when the No. 1 cash crop of oil has built its wealth, the report states.
"I don’t think that’s surprising,” said Eurasia Group energy analyst Will Pearson of the guarded approach, adding that Saudi Aramco has long been hesitant given the state’s status as the world’s leading oil producer.
Without a “huge, revolution[ary], game-changing technology,” an abrupt shift in the “fuel mix” is doubtful, said Pearson, who puts more stock in green technologies gradually scooping up market share. Given the abundance of other resources, the Saudi government is more likely to make such nascent energy sources a smaller part of its overall budget, he argued.
Despite trepidation, the Gulf country has been drawn to the "relatively unproven technologies" of biofuels and electric vehicles even though, for the most part, "people are going to be dependent on the oil sector for transport," Pearson told OilPrice.com. Given its access to sunlight, Saudi Arabia has great potential to become a major solar player but has not made “too much concrete progress so far,” he said.
Saudi Arabia is also taking aim at clean water. In a nation where water is scarce, Riyadh plans to build a desalination plant to deliver cheaper, cleaner water.
Yet growing pains are bound to accompany this push away from traditional oil and gas, analysts warn.
“You have to come up with the right regulatory regime,” Pearson said. While some companies are already doing “quite well” in this young energy category, traditional fossil fuels are still a less costly option, he said. An international carbon price would help but “I don’t think there’s been a lot of progress on that,” he said.
The bottom line is that the new industry has to beat traditional hydrocarbons, said Molly Williamson, a consultant and scholar at the Middle East Institute in Washington focused on Middle East and energy issues. “If you develop an alternative energy source that is effective, that is available, that is reliable, but it is the equivalent of $12 a gallon for gasoline, it’s not going to make it,” she charged.
Though it’s uncertain how much these new technologies will cost, “what we know is it isn’t cheap,” Williamson told OilPrice.com. “You’re looking at a long-term projection of unknowable cost. The people that can do that now are the people who can afford it.” This includes not just Gulf nations, she explained, but countries with hard-currency reserves.
What is promising is that many Gulf Cooperation Council countries, as well as oil-producing regions in the Middle East and North Africa, are actually announcing “targets for renewables,” investigating financing mechanisms, and laying the groundwork to bring new types of energy “into the fuel mix,” said Pearson.
The eager drive toward alternative energy is, in part, a bid to meet two of the fastest-growing markets in the world: China and India, Williamson maintained. “The United States has been saying on the record, publicly, repeatedly, we don’t want foreign oil,” she explained. Gulf nations now “see an alternative market, and that market overwhelmingly is Asia.”
In the oil-producing pockets of the Middle East and Africa, there is “growing recognition” that developing wind and solar power can help free up natural gas or oil for export, which is more lucrative, added Pearson.
The Middle East has dabbled in new brands of energy for a decade, but the “incredible run-up” that took place in 2007 to 2008 on the heels of the economic crisis made it “more dramatic,” said Williamson.
Apart from Saudi Arabia, Egypt, which is facing dwindling oil and gas reserves, announced it would host a Dutch factory that will play a key part in its bid to create solar energy.
And energy importer Morocco is planning to embark on a large solar energy project with a $9-billion price tag that is expected to produce about 40 percent of the country’s power by the year 2020. The North African state also has a windmill farm near the city of Tangiers.
But the United Arab Emirates has articulated the most avant-garde vision on new energy with the Masdar Initiative, said Williamson, referring to the effort to usher in renewable energy solutions and clean technologies. “They want to be the first carbon emissions-free country on the planet,” she explained. “They have come up with a very ambitious plan and they have already financed it fully.”
This makes the U.A.E., by far, “ahead of the game” compared to its neighbours in protecting itself against the “shocks and volatility” of traditional markets like the United States, Williamson said.
By Fawzia Sheikh for Oilprice.com who offer detailed analysis on Crude oil, Geopolitics, Gold and most other Commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com
NORFOLK, Virginia -- Eleven indicted Somali pirates dropped a bombshell in a U.S. court today, revealing that their entire piracy operation is a subsidiary of banking giant Goldman Sachs.
There was an audible gasp in the courtroom when the leader of the pirates announced, "We are doing God's work. We work for Lloyd Blankfein."
The pirate, who said he earned a bonus of $48 million in dubloons last year, elaborated on the nature of the Somalis' work for Goldman, explaining that the pirates attacked ships that Goldman had already shorted.
"We were functioning as investment bankers, only every day was casual Friday," the pirate said.
The pirate acknowledged that they merged their operations with Goldman in late 2008 to take advantage of the more relaxed regulations governing bankers as opposed to pirates, "plus to get our share of the bailout money."
In the aftermath of the shocking revelations, government prosecutors were scrambling to see if they still had a case against the Somali pirates, who would now be treated as bankers in the eyes of the law.
"There are lots of laws that could bring these guys down if they were, in fact, pirates," one government source said. "But if they're bankers, our hands are tied."
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Prophecy Resource Corp. Appoints Rob McEwen to Advisory Board
Prophecy Resource Corp. (TSX.V: PCY, OTC: PCYRF) is pleased to announce the appointment of Rob McEwen to the company's Advisory Board. McEwen is a leading Canadian mining industry entrepreneur. He is the chairman and CEO of U.S. Gold Corp. and Minera Andes Inc. McEwen was the founder and former chairman and CEO of Goldcorp Inc., whose Red Lake Mine in northwestern Ontario, Canada, is considered to be the richest gold mine in the world. During his tenure at Goldcorp, McEwen transformed the company from a collection of small companies into a mining powerhouse, growing its market capitalization from $50 million to approximately $8 billion.
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
Preliminary Feasibility Study Completed for Seabridge Gold's KSM Project
Study Reports Reserves of 30.2 Million Oz. Gold, 7 Billion Lbs. Copper, 133 Million Oz Silver, 210 Million Lbs. Molybdenum
Base Case Life of Mine Cash Operating Costs Estimated at $144/oz. Gold Produced (Net of Base Metal Credits)
Toronto -- Seabridge Gold Inc. has announced results from a National Instrument 43-101 compliant preliminary feasibility study of its 100-percent owned KSM project in northern British Columbia, Canada. The study was prepared by Wardrop, a Tetra Tech company, a major international engineering and consulting firm.
Seabridge President and CEO Rudi Fronk says, "The study confirms that the KSM project now hosts the largest gold reserve in Canada and one of the largest in the world. KSM is projected to provide an extraordinary mine life of more than 35 years with estimated cash operating costs well below the current average of the major gold producers. Estimated capital costs are in line with those of comparable, large-scale, undeveloped gold-copper projects and KSM has the advantage of being located in a low-risk jurisdiction."
Gold prices are currently standing at $1153.90/oz having been through a period of consolidation despite the US Dollar making good ground. We have warned in the past that this is a volatile sector and the first few months of this year ... Read More...
I saw something die today. It didn't die accidentally either. It was killed.
This was a very painful event to watch, not just because death is tragic and not because this death was intentional rather than accidental.
It was very painful to watch because the thing being killed didn't even know it was dying ... and it didn't know it was actually participating in its own death. It didn't know it was helping the hangman not just put the noose around its neck but helping the hangman open the trap door under its feet.
What died today was Goldman Sachs.
It has existed for 140 years. But today all that ended, as the head of Goldman Sachs, Lloyd Blankfein, in his prepared remarks before the Senate Governmental Affairs Subcommittee on Investigations, said, "We have been a client-centered firm for 140 years and if our clients believe that we don't deserve their trust, we cannot survive."
That was Lloyd Blankfein putting the noose around Goldman Sachs' neck.
And then -- in his opening exchange with subcommittee chair Sen. Carl Levin -- Blankfein proved that Goldman Sachs absolutely, positively does not deserve the trust of its clients.
That was Blankfein helping open the door under Goldman Sachs' feet.
In his Senate appearance, Blankfein participated in the death of his own company. It was really a stunning thing to watch.
I expect Goldman Sachs to be out of business by the end of this year and maybe before the November election. That's just my opinion, of course. But I'll justify it in a moment.
I will post C-Span's coverage of this testimony as soon as it's available. I predict it will be viewed for years to come not just by students of business ethics but also by students of famous moments in the civic life of America. I believe this moment will be seen on par with the famous incident in which Sen. Josephy McCarthy was brought down with the simple question: "Have you no sense of decency?"
Senator Levin's simple question -- the one that killed Goldman Sachs -- was: "Do you think it's proper for Goldman Sachs to bet against the security it is selling to a client without telling that client that it is making that bet?"
(I will check the transcript later, to make sure I have the wording of this question correct.)
Blankfein said over and over again that it was proper for Goldman Sachs to do what it had done. He even said at one point that the minute Goldman Sachs sells something to its customer, it no longer owns that security and has "the opposite interest" to its client regarding that security.
This was just one of many breathtaking moments, as I could tell that Blankfein had no idea what he was doing to his firm.
In late 2001 the collapse of Enron led to the death of the legendary accounting firm Arthur Andersen. Arthur Anderson's reputation was unmatched in the field. But in 2002 Arthur Andersen was found guilty of criminal charges related to its auditing of Enron and gave up its license to practice accounting.
Criminal behavior. No trust. Reputation destroyed. No customers. Firm dead.
Welcome to the Arthur Andersen reality, Goldman Sachs.
Criminal charges of fraud brought, and there may be more coming. No trust. Reputation destroyed. No customers. Firm dead.
What a fascinating time we are living in. If things really do play out the way they did with Enron and Arthur Andersen -- and I think they will -- I guess we'll be able to say that there is such a thing as white-collar justice in America.
UPDATE: Blankfein just admitted to Senator Levin that he never thought about the fact that there are certain investors (such as universities and other institutions) that can invest only in Triple-A-rated securities. This is in a discussion of Goldman's desire for rating agencies to make sure that more securities are rated Triple A than any other rating. By creating a Triple A rating where such a rating is not deserved, the rating agencies -- and Goldman by then selling them -- put at risk those institutions that must invest conservatively (because their investments go to supporting things like education).
This is further proof that clients cannot trust Goldman Sachs. The head of Goldman Sachs has admitted that he never knew that some of his company's clients have to be protected from investing in risky investments. As a result he did not make sure that Goldman Sachs did not sell risky investments that look like Triple-A-rated investments without actually being Triple A.
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Steven G. Brant is an independent researcher and writer.
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Private Placement Offering for Silver Phoenix Resources Inc.
Silver Phoenix Resources Inc. [CNSX: SP] has announced a non-brokered private placement offering to raise up to $2 million by issuance of up to 4 million flow-through units at a price of $0.50 per unit. Non-flow-through common shares are being offered on the same terms to interested subscribers.
Each flow-through unit consists of one common share in the capital of the corporation (a "flow-through share") and half of one non-flow-through common share purchase warrant (a "warrant"). Each whole warrant shall entitle the holder to acquire one non-flow-through common share in the capital of the corporation (a "warrant share") until 5 p.m. Vancouver time on the date 24 months following the closing date (as defined herein) at a price of $0.70.
The proceeds raised from the offering will be used for general exploration and to drill the 100-percent-owned River Jordan Property. This historic property hosts the King Fissure [aka River Jordan] lead, zinc, and silver deposit.
Following a comprehensive field program in 1991, a structural re-interpretation of the complex folds hosting the King fissure deposit resulted in a major increase in potential mineralization to 20 million tonnes of 7.5 percent lead, 7.5 percent zinc, and 100 g/t silver [Laird and Clark, 1991]. The estimated tonnage of the light rare earth and niobium-bearing extrusive carbonatite unit is on the order of 33,750,000 tonnes, with no ore grade currently established. This historical estimate predates National Instrument 43-101 legislation.
Interested parties can contact:
William J. Murray, President and CEO Silver Phoenix Resources Inc. Box 134 / 4631 75th Ave. NE Canoe, British Columbia, V0E 1K0 Canada 250-832-0336 bmurray@sunwave.net www.silverphoenixresources.com
For more information about the River Jordan Property, please visit:
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
For two decades Anglo Far-East Bullion co. has been providing select international clientele the highest degree of privacy, security, and access to buy, hold, and sell allocated gold and silver bars.
-- Allocated gold and silver bars: AFE will not only provide you with the individual bar numbers of the bullion bars you own, but you can also rest safely in the knowledge that each bar is sight-verified by a top Swiss auditor and annually checked off against AFE accounts to ensure that your metal is locked away safely.
-- Guaranteed market access and liquidity: AFE buys and sells directly with LBMA-certified metal refineries only. In bypassing the commodities market exchanges such as the Comex and bullion banks, AFE provides clients a means of access to the global physical precious metals markets that may not be available to others should systemic issues in the bullion markets arise.
-- Stand for delivery: If at any time you wish to take delivery of your metal, AFE will arrange to have bars shipped to you anywhere in the world.
-- Zero tolerance for leverage: AFE refuses to deal with "paper gold." We believe our clients want the metal itself so they may avoid the risks of the paper markets. AFE will not introduce such risk to its clients.
-- Metal vaulted outside the banking system: None of AFE's clients have to worry that their metal is exposed to encumbrances bearing on bullion banks and commodities markets. None of AFE's vaulting partners or other strategic providers are controlled or majority-owned by banks. This is by design, not by accident.
-- Access to the LBMA system of refineries, vaults, and security providers. This allows AFE clients to maintain London Good Delivery status of their metal, ensuring ease of sale or transfer, while being insulated from the "paper gold" market.
-- Total privacy: AFE accounts are managed as numbered accounts in the Swiss private banking tradition. At no time does identifying information such as name and address appear on any account statement or other account documents.
-- Geo-political diversification: In the words of the wise King Solomon, "Place a portion of seven and eight throughout the land, for you know not where evil may arise." Many of AFE's clients choose AFE specifically because their metal is safely vaulted outside the jurisdiction they reside in.
-- Iron-clad governance: By contract with AFE's vaulting provider, no access may be made to the vaults without the attendance of an agent of the vault as well as an agent of the third-party signatory trustee, in this case top Swiss auditor Grant Thornton. All metal going into and -- more importantly -- coming out of the vaults requires the approval of a third-party signatory trustee as well as a detailed, sight-verified report of each bar and serial number by the auditor.
For more information and a personal consultation with one of our private account liaisons, please contact us:
Anglo Far-East Bullion Co. E-mail: newclients@anglofareast.com USA: 1-206-905-9961 Panama: 507-264-0164 New Zealand: +64-9337-0715 Australia: +61-8-8334-6855 Switzerland: +41-43-508-0351 United Kingdom: +44-208-819-3911 Hong Kong: +852-8124-1265
GATA board member Adrian Douglas cautions against any enthusiasm arising from Business Insider's disclosure tonight of the International Monetary Fund's defiance of questions about its supposed gold reserves.
In response to the Business Insider report, Douglas expects a quick posting at FinancialSense.com by CPM Group founder and U.S. Commodity Futures Trading Commission hearing witness Jeffrey M. Christian to this effect:
"Everybody has known for years that the International Monetary Fund has no gold. In fact, everybody knows that the Western central banks have no gold.
"Everybody knows that there is really no gold in Fort Knox.
"Everybody knows that all gold IOUs have no backing.
"But there is no fraud here because even if everyone asks for their gold at the same time and there isn't any to deliver to them, there is always the option for cash settlement."
CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc.
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Prophecy Resource Corp. Appoints Rob McEwen to Advisory Board
Prophecy Resource Corp. (TSX.V: PCY, OTC: PCYRF) is pleased to announce the appointment of Rob McEwen to the company's Advisory Board. McEwen is a leading Canadian mining industry entrepreneur. He is the chairman and CEO of U.S. Gold Corp. and Minera Andes Inc. McEwen was the founder and former chairman and CEO of Goldcorp Inc., whose Red Lake Mine in northwestern Ontario, Canada, is considered to be the richest gold mine in the world. During his tenure at Goldcorp, McEwen transformed the company from a collection of small companies into a mining powerhouse, growing its market capitalization from $50 million to approximately $8 billion.
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
For two decades Anglo Far-East Bullion co. has been providing select international clientele the highest degree of privacy, security, and access to buy, hold, and sell allocated gold and silver bars.
-- Allocated gold and silver bars: AFE will not only provide you with the individual bar numbers of the bullion bars you own, but you can also rest safely in the knowledge that each bar is sight-verified by a top Swiss auditor and annually checked off against AFE accounts to ensure that your metal is locked away safely.
-- Guaranteed market access and liquidity: AFE buys and sells directly with LBMA-certified metal refineries only. In bypassing the commodities market exchanges such as the Comex and bullion banks, AFE provides clients a means of access to the global physical precious metals markets that may not be available to others should systemic issues in the bullion markets arise.
-- Stand for delivery: If at any time you wish to take delivery of your metal, AFE will arrange to have bars shipped to you anywhere in the world.
-- Zero tolerance for leverage: AFE refuses to deal with "paper gold." We believe our clients want the metal itself so they may avoid the risks of the paper markets. AFE will not introduce such risk to its clients.
-- Metal vaulted outside the banking system: None of AFE's clients have to worry that their metal is exposed to encumbrances bearing on bullion banks and commodities markets. None of AFE's vaulting partners or other strategic providers are controlled or majority-owned by banks. This is by design, not by accident.
-- Access to the LBMA system of refineries, vaults, and security providers. This allows AFE clients to maintain London Good Delivery status of their metal, ensuring ease of sale or transfer, while being insulated from the "paper gold" market.
-- Total privacy: AFE accounts are managed as numbered accounts in the Swiss private banking tradition. At no time does identifying information such as name and address appear on any account statement or other account documents.
-- Geo-political diversification: In the words of the wise King Solomon, "Place a portion of seven and eight throughout the land, for you know not where evil may arise." Many of AFE's clients choose AFE specifically because their metal is safely vaulted outside the jurisdiction they reside in.
-- Iron-clad governance: By contract with AFE's vaulting provider, no access may be made to the vaults without the attendance of an agent of the vault as well as an agent of the third-party signatory trustee, in this case top Swiss auditor Grant Thornton. All metal going into and -- more importantly -- coming out of the vaults requires the approval of a third-party signatory trustee as well as a detailed, sight-verified report of each bar and serial number by the auditor.
For more information and a personal consultation with one of our private account liaisons, please contact us:
Anglo Far-East Bullion Co. E-mail: newclients@anglofareast.com USA: 1-206-905-9961 Panama: 507-264-0164 New Zealand: +64-9337-0715 Australia: +61-8-8334-6855 Switzerland: +41-43-508-0351 United Kingdom: +44-208-819-3911 Hong Kong: +852-8124-1265
GATA board member Adrian Douglas cautions against any enthusiasm arising from Business Insider's disclosure tonight of the International Monetary Fund's defiance of questions about its supposed gold reserves.
In response to the Business Insider report, Douglas expects a quick posting at FinancialSense.com by CPM Group founder and U.S. Commodity Futures Trading Commission hearing witness Jeffrey M. Christian to this effect:
"Everybody has known for years that the International Monetary Fund has no gold. In fact, everybody knows that the Western central banks have no gold.
"Everybody knows that there is really no gold in Fort Knox.
"Everybody knows that all gold IOUs have no backing.
"But there is no fraud here because even if everyone asks for their gold at the same time and there isn't any to deliver to them, there is always the option for cash settlement."
CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc.
ADVERTISEMENT
Prophecy Resource Corp. Appoints Rob McEwen to Advisory Board
Prophecy Resource Corp. (TSX.V: PCY, OTC: PCYRF) is pleased to announce the appointment of Rob McEwen to the company's Advisory Board. McEwen is a leading Canadian mining industry entrepreneur. He is the chairman and CEO of U.S. Gold Corp. and Minera Andes Inc. McEwen was the founder and former chairman and CEO of Goldcorp Inc., whose Red Lake Mine in northwestern Ontario, Canada, is considered to be the richest gold mine in the world. During his tenure at Goldcorp, McEwen transformed the company from a collection of small companies into a mining powerhouse, growing its market capitalization from $50 million to approximately $8 billion.
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
For two decades Anglo Far-East Bullion co. has been providing select international clientele the highest degree of privacy, security, and access to buy, hold, and sell allocated gold and silver bars.
-- Allocated gold and silver bars: AFE will not only provide you with the individual bar numbers of the bullion bars you own, but you can also rest safely in the knowledge that each bar is sight-verified by a top Swiss auditor and annually checked off against AFE accounts to ensure that your metal is locked away safely.
-- Guaranteed market access and liquidity: AFE buys and sells directly with LBMA-certified metal refineries only. In bypassing the commodities market exchanges such as the Comex and bullion banks, AFE provides clients a means of access to the global physical precious metals markets that may not be available to others should systemic issues in the bullion markets arise.
-- Stand for delivery: If at any time you wish to take delivery of your metal, AFE will arrange to have bars shipped to you anywhere in the world.
-- Zero tolerance for leverage: AFE refuses to deal with "paper gold." We believe our clients want the metal itself so they may avoid the risks of the paper markets. AFE will not introduce such risk to its clients.
-- Metal vaulted outside the banking system: None of AFE's clients have to worry that their metal is exposed to encumbrances bearing on bullion banks and commodities markets. None of AFE's vaulting partners or other strategic providers are controlled or majority-owned by banks. This is by design, not by accident.
-- Access to the LBMA system of refineries, vaults, and security providers. This allows AFE clients to maintain London Good Delivery status of their metal, ensuring ease of sale or transfer, while being insulated from the "paper gold" market.
-- Total privacy: AFE accounts are managed as numbered accounts in the Swiss private banking tradition. At no time does identifying information such as name and address appear on any account statement or other account documents.
-- Geo-political diversification: In the words of the wise King Solomon, "Place a portion of seven and eight throughout the land, for you know not where evil may arise." Many of AFE's clients choose AFE specifically because their metal is safely vaulted outside the jurisdiction they reside in.
-- Iron-clad governance: By contract with AFE's vaulting provider, no access may be made to the vaults without the attendance of an agent of the vault as well as an agent of the third-party signatory trustee, in this case top Swiss auditor Grant Thornton. All metal going into and -- more importantly -- coming out of the vaults requires the approval of a third-party signatory trustee as well as a detailed, sight-verified report of each bar and serial number by the auditor.
For more information and a personal consultation with one of our private account liaisons, please contact us:
Anglo Far-East Bullion Co. E-mail: newclients@anglofareast.com USA: 1-206-905-9961 Panama: 507-264-0164 New Zealand: +64-9337-0715 Australia: +61-8-8334-6855 Switzerland: +41-43-508-0351 United Kingdom: +44-208-819-3911 Hong Kong: +852-8124-1265
Jeff Miller submits: 
Ralph Aldis is a portfolio manager at 
Leveraged European Entities from a Sovereign Risk Perspective – retail
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