Gold World News Flash |
- The Problem With 'Sunshine Pumper' Strategists
- Gold Stocks – The Long-Term Perspective
- Oil Tumbles while Gold Holds as Risk Aversion Lacks a Fundamental Stabilizer
- How to Invest in Junior Gold and Silver Companies
- Roger Wiegand: Opportunity in Crisis
- Bernanke Pledge on Economy Gives Some Relief to Oil Prices
- Gold Market Update - August 30, 2010
- Silver Market Update - August 30, 2010
- All-In on Gold
- China's rising bank debt could leave nation exposed
- Why Investors Need to Look at Africa Right Now
- Jim?s Mailbox
- Gold Scents: S&P 950...NOT SO FAST
- Proposing an Overnight Gold Fund
- Gold Comment
- Crude Oil Flat Ahead of Plethora of Data, Gold Slow but Steady
- Explorer/driller profitable, provides positive cash flow
- The Coming Case for Commodities
- Now that GATA can be quoted, can central banks be asked?
- Opportunity in Crisis
- It Doesn’t Have to Be ‘Inflation vs. Deflation’
- Inflation Update: Still Tame, But Still a Concern
- Gold Stocks - The Long-term Perspective
- Silver Producers Enter Profitable Phase
- Ratio Analyses Suggest Gold and Silver Will Go Much Higher!
- Big Double Dipper
- Today's Market: The 'Bond Bubble', Equity Sentiment and Dr. Copper
- The Summer the Recovery Went Missing
- Gold Seeker Closing Report: Gold and Silver End Near Unchanged While Stocks Fall
- 30 Statistics That Prove The Elite Are Getting Richer, The Poor Are Getting Poorer And The Middle Class Is Being Destroyed
- IMF Eliminates Borrowing Cap On Rescue Facility In Anticipation Of Europe Crisis 2.0; US Prepares To Print Fresh Trillions In "Rescue" Linen
- Honest Money Gold and Silver Report: Market Wrap Week Ending 8/27/10
- If Lehman Had “No Idea,” Who Else is Clueless?
- Our Ever Shrinking Pension Payouts?
- Bank of America Now Proudly Exporting HFT Market Death And Destruction To Asia
- Swiss Franc Explodes As Asia Opens, SNB Intervention Bells Ringing Loud
- Exhaustive San Fran Fed Study Finds That, Gasp, Immigrants Are Good For The Economy
- More on “Professional” Credit Cards
- A Picture's Worth A Thousand Words
- Big Commodity Trader: U.S. President Is Only A Puppet
| The Problem With 'Sunshine Pumper' Strategists Posted: 30 Aug 2010 07:15 PM PDT Christopher Pavese submits: In a short series titled The Truth About Valuation we explained that:
Complete Story »
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| Gold Stocks – The Long-Term Perspective Posted: 30 Aug 2010 06:14 PM PDT Displayed below is a long-term weekly chart of the Barrons Gold Mining Index (BGMI) with a log scale. The chart includes the BGMI's 200-week moving average (in red) and two upward-sloping trend-lines (in green). We've given the trend-lines the same slope to show that the gold sector's current long-term bull market is progressing at roughly the same pace as the long-term bull market that ran from the early 1960s through to 1980.
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| Oil Tumbles while Gold Holds as Risk Aversion Lacks a Fundamental Stabilizer Posted: 30 Aug 2010 06:09 PM PDT courtesy of DailyFX.com August 30, 2010 04:01 PM Positive growth data from the US and sentiment readings from the Eurozone doesn’t offset underlying fears of economic activity and financial health going forward, leaving crude to correct its strong upswing and gold to stabilize. North American Commodity Update Commodities - Energy Energy Traders Adopt the Pessimism of Equities Participants, Ignore Improvement in Data Crude Oil (LS Nymex) - $74.09 // $0.61 // 0.82% Having carved out a long over-due bullish correction following its most prominent bear wave in three months, US-based oil seems to have hit the extent of what can be expected from speculative drive. At this point, the market requires fundamental drive to establish a genuine direction for a market that has been more or less range bound since May. In the sense that today’s price action was generally a counter-move to the end-of-the-week drive through this past Friday, congestion is still a hurdle ...
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| How to Invest in Junior Gold and Silver Companies Posted: 30 Aug 2010 06:09 PM PDT Jordan Roy-Byrne, CMT The various large-cap gold stock indices are readying for a major breakout. As we've noted, this isn't just a breakout through 2008 highs but a breakout through highs dating back to 1980. Yes, there are some gold stock indices like the Barron's Gold Mining Index and others, which show a 30-year base dating back to 1980. This will be a historic breakout for the gold stocks. Yet, there are two things you should note about the large cap gold stocks. First, as a group, over time they notoriously underperform or struggle to outperform gold. Secondly, those stocks are starting to lose out to the juniors. The following chart shows our junior gold index versus the HUI Gold bugs index. As you can see, the juniors are likely to perform better than the large cap gold stocks, which themselves are on the cusp of a historic breakout. Hence, its time most folks start learning how to invest in the juniors. It can be difficult and risky, but with the right...
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| Roger Wiegand: Opportunity in Crisis Posted: 30 Aug 2010 06:09 PM PDT Source: Brian Sylvester of The Gold Report 08/30/2010 Listening to Trader Tracks Editor Roger Wiegand talk about market conditions and precious metals is like listening to your favorite uncle tell stories at Thanksgiving. The difference is that Roger's stories are a lot more likely to make you money. In this exclusive interview with The Gold Report, Roger offers up a few of his favorite gold and silver plays and some sage market advice. The Gold Report: In a recent edition of Trader Tracks you quoted a former Nixon speechwriter who said, "Economics should never be treated as a science. Its claims are not falsifiable, which is why economists can disagree so violently among themselves. Economics is a branch of anthropology and psychology. . .a moral discipline." Do you believe that's true? Roger Wiegand: I definitely agree with that. I think there's more psychology in economics than many people realize. You can see that with the current economic reports coming out of W...
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| Bernanke Pledge on Economy Gives Some Relief to Oil Prices Posted: 30 Aug 2010 06:09 PM PDT [B][/B] Oil Market Summary for 08/23/2010 to 08/27/2010 Oil prices recovered some lost ground Friday after Federal Reserve chairman Ben Bernanke said the Fed stands ready to do whatever it takes to support economic recovery. The benchmark West Texas Intermediate October futures contract gained 2.5% on Friday, settling at $75.17 a barrel and wiping out losses from the beginning of the week. The expiring September contract closed at $73.46 a week ago. In a widely anticipated speech Friday morning, Bernanke stopped short of announcing new measures to inject money into the economy but made it clear that the central bank was monitoring the situation closely and would act if necessary to prevent a deflationary spiral. "The Federal Open Market Committee will strongly resist deviations from price stability in the downward direction," the Fed chief said in a speech at the annual central bank gathering in Jackson Hole, Wyo. Bernanke's remarks came just after the Com...
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| Gold Market Update - August 30, 2010 Posted: 30 Aug 2010 06:09 PM PDT Clive Maund In the last update we were looking for gold to turn lower, it did turn lower and dropped quite heavily back to its 200-day moving average. However, it has risen all the way back up again and is now within striking distance of breaking out to new highs. On its 1-year chart we can see how gold has been rising steadily for 4 straight weeks now to arrive at a zone of substantial resistance approaching its highs. This fact alone makes it likely that it will pause beneath the highs and possibly react slightly before it can break out to new highs. However, we should note that the steady nature of gold’s rise over the past 4 weeks has prevented it from becoming seriously overbought, so that it has the capacity to break out to new highs even now, although a pause to consolidate/react is thought more likely first. Moving averages are very positively aligned, which bodes well for a breakout to new highs leading to a significant upleg over the medium-term. ...
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| Silver Market Update - August 30, 2010 Posted: 30 Aug 2010 06:09 PM PDT Clive Maund After looking extremely vulnerable for weeks, silver staged an upside breakout last week that has taken the price away from the danger zone and also signaled a probable breakout to new highs that, should it occur after such a prolonged standoff, can be expected to lead to a powerful uptrend that takes the price to a target area in the high $20’s. On its 6-month chart we can see how on Wednesday silver broke out upside from the Triangle it had been stuck in for months. This is regarded as a genuine breakout because of the way it broke sharply out of the Triangle after weeks of quiet trading, and also because of other factors, such as the positive patterns approaching completion in a range of Precious Metals stocks. If it is genuine then it should not drop back into the Triangle, although it may well react back short-term towards its top line, which would be viewed as a buying opportunity, before it goes on to take out the resistance towards and at its hig...
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| Posted: 30 Aug 2010 06:09 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here. Stay up to date on his model portfolio! August 30, 2010 11:17 AM Read [url]http://www.grandich.com/[/url] grandich.com...
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| China's rising bank debt could leave nation exposed Posted: 30 Aug 2010 06:09 PM PDT August 30, 2010 10:48 AM - Moody's rating agency is concerned that China is powering its economic growth by raising the gearing of the banking system, leaving the country exposed if the outlook darkens. Read the full article at the Telegraph......
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| Why Investors Need to Look at Africa Right Now Posted: 30 Aug 2010 06:09 PM PDT Africa has had many false dawns. So there are good reasons to be skeptical of yet another rising sun, full of promise. But this dawn has been a long time in the making and has different foundations than before. Already, we're seeing some amazing changes. These changes began as Africa opened up its markets. The trend is unmistakable. Many governments have sold off lots of state-owned enterprises, for instance. Nigeria alone privatized 116 entities between 1999–2006. Generally speaking, governments have lowered corporate taxes and beefed up their legal systems. They've loosened up on barriers to trade. And inflation rates have fallen. The average inflation rate dropped from 22% in the 1990s, to 8% after 2000. Foreign debts dropped by one quarter. Budget deficits fell by two-thirds. This is like laying a seedbed for investors to thrive. So the money started to come and settle in Africa. Foreign investment in Africa is up sevenfold since 2000, to $9 billion. Africa's economy is now about...
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| Posted: 30 Aug 2010 06:09 PM PDT View the original post at jsmineset.com... August 30, 2010 09:27 AM Eric, In the early 1980s I wrote a book on the strategic metals and materials war. I owned a minor metals trading business in London at 116 Borough High Street. I know this market better than most. This is HUGE. It can shut down the Western World high tech industry. Jim Backlash over China curb on metal exports CIGA Eric Draconian describes one perspective. Strategic position or reposition describes another. It’s difficult to establish leverage in trade negotiations when huge structural deficits places hat during the Treasury auctions to the same nations setting the 'unfavorable' rules. China’s draconian export curbs on rare earth minerals needed by the rest of the world for frontier technologies is escalating into a serious diplomatic and trade clash with the United States and other leading powers. Source: telegraph.co.uk Thanks Bob More…...
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| Gold Scents: S&P 950...NOT SO FAST Posted: 30 Aug 2010 06:09 PM PDT The better than expected GDP numbers threw a slight monkey wrench in the trading plan (for you traders out there). I was expecting a gap down open that would break through the 1040 pivot. The plan was to buy into that gap with a stop under the morning intraday low. The market did break slightly below 1040 (1039.70) so in theory if one was quick they could have jumped in right there. I doubt anyone was that quick, so I suspect almost no one caught the exact low. Perfect timing isn't critical though if this is a daily cycle bottom, as we should have at least 2 to 3 weeks of upside ahead of us. I'm assuming the market doesn't drop back down to test the lows on next Fridays jobs report. I really doubt it will. I think the jobs report has probably lost its ability to move the market at this point. Until we start to roll over into the next recession we are probably going to continue to see mildly positive jobs numbers for now. When we start seeing 200,000 and 300,000 jobs bein...
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| Proposing an Overnight Gold Fund Posted: 30 Aug 2010 06:09 PM PDT Friday, August 27, 2010 at 12:53AM There is much debate within the precious metals industry regarding the alleged suppression, or at least manipulation to an extent, by either central banks or the proprietary trading divisions of large banks, or a combination of the two. In April the US Commodity Futures Trading Commission CFTC fined Hedge Fund Moore Capital for manipulation of the New York platinum and palladium futures market, as the firm was found to be "banging the close", which involves entering orders in a manner designed to inflate the closing price, which other various derivatives contracts could be based on. So that is irrefutable evidence that the precious metals futures market is, at least to some extent, being manipulated. However a large concentration of this debate is based not on platinum and palladium, but on gold and silver, and particularly gold. Numerous hypothesises have been put for...
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| Posted: 30 Aug 2010 06:09 PM PDT The following is automatically syndicated from Grandich's blog. You can view the original post here. Stay up to date on his model portfolio! August 30, 2010 07:03 AM The Gold Cartel and their perma bear buddies are once again up to their old tricks on the Comex. Bill Murphy, Chris Powell, GATA and I have a message for them See you at new highs for 2010 [url]http://www.grandich.com/[/url] grandich.com...
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| Crude Oil Flat Ahead of Plethora of Data, Gold Slow but Steady Posted: 30 Aug 2010 06:09 PM PDT courtesy of DailyFX.com August 29, 2010 10:51 PM Crude oil will attempt to build upon last week’s three-day rally, but a plethora of economic data will pose an obstacle for the commodity. Gold faces an obstacle of its own in the form of overbought conditions. Commodities – Energy Crude Oil Flat Ahead of Plethora of Data Crude Oil (WTI) - $75.17 // $0.00 // 0.00% Commentary: Crude oil will attempt to build upon last week’s three-day rally that saw the commodity bounce from a low of $70.76 to $75.59. But, as much of that rally can be attributed to oversold conditions, it will be difficult to repeat such performance, especially given that the U.S. economic outlook remains extremely challenging in the near-term. While Fed Chairman Ben Bernanke’s pledge on Friday to restart the central bank’s quantitative easing program if needed is supportive of financial markets, the coming plethora of economic data will likely be more influential in determining th...
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| Explorer/driller profitable, provides positive cash flow Posted: 30 Aug 2010 06:09 PM PDT We have more on Timberline Resources (TLR and V.TBR), the combination mine engineering/gold explorer whose Canada and USA-traded shares are gaining smartly. Idaho's Timberline has its footprint in Idaho, where it is based, in Montana, where its Butte Highlands gold mine is a year or so away from reality; and in Nevada. Timberline also is staked in Peru via an investment in Rae Wallace Mining.
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| The Coming Case for Commodities Posted: 30 Aug 2010 06:08 PM PDT Kevin McElroy submits: I firmly believe that Ben Bernanke and I share a common viewpoint. We both have no idea what he's going to do four months from now. There's simply too much uncertainty. We don't know what's going to happen with the multitude of economic indicators and whether they'll spell success or failure for his policies. So let's back up and look elsewhere for certainties. I think I've found some bullish news for commodity investments. Why? As of this writing, there seems to be little chance that President Obama and his colleagues in the Senate and Congress will extend the Bush Administration's tax cuts. Complete Story »
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| Now that GATA can be quoted, can central banks be asked? Posted: 30 Aug 2010 06:06 PM PDT For years GATA banged on the door of the Financial Times, including a meeting in London with the newspaper's commodities reporter a year and a half ago, trying to get some attention for the international central bank gold price suppression scheme. The clamor went without result until this weekend, when the FT published a long story about gold by the paper's personal finance reporter, Ellen Kelleher, which was also in large part about GATA's work.
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| Posted: 30 Aug 2010 06:03 PM PDT Listening to Trader Tracks Editor Roger Wiegand talk about market conditions and precious metals is like listening to your favorite uncle tell stories at Thanksgiving. The difference is that Roger's stories are a lot more likely to make you money. In this exclusive interview with The Gold Report, Roger offers up some sage market advice.
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| It Doesn’t Have to Be ‘Inflation vs. Deflation’ Posted: 30 Aug 2010 06:00 PM PDT Many readers have pointed out that our long-running discussion of deflation has tended to overlook the impact of price increases, or at least price stability, on essential goods and services. In the essay below, Robert Moore, a frequent contributor to the Rick's Picks forum, explains how both type of "flations" can co-exist.
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| Inflation Update: Still Tame, But Still a Concern Posted: 30 Aug 2010 05:59 PM PDT Calafia Beach Pundit submits:  If you don't believe that the Bureau of Economic Analysis is staffed by professionals that do their best to measure inflation accurately, then this post is not for you. I've been working with the BEA's numbers since 1980, and I have never managed to turn up evidence of gross or chronic error in their numbers. It's fashionable to say that the government is systematically understating inflation, but as the Boskin Commission found, the CPI, for example, may actually be overstating inflation (the CPI is calculated by the Bureau of Labor Statistics). I've compared the CPI to the broader and better-calculated personal consumption deflator (shown above), and to me it looks like there is indeed a case to be made that the CPI overstates inflation as measured by the PCE deflator by maybe as much as 0.5% per year over time. But that's relatively small potatoes. The PCE deflator is arguably the best measure of inflation at the consumer level that we have, and that's why the Fed has adopted it as their preferred measure of inflation. Complete Story »
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| Gold Stocks - The Long-term Perspective Posted: 30 Aug 2010 05:55 PM PDT
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| Silver Producers Enter Profitable Phase Posted: 30 Aug 2010 05:53 PM PDT
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| Ratio Analyses Suggest Gold and Silver Will Go Much Higher! Posted: 30 Aug 2010 05:42 PM PDT
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| Posted: 30 Aug 2010 05:28 PM PDT The US markets fell 1.5% last night after rallying a similar amount the previous session. This is a clear indicator of a market in trouble. The market rejoiced on Friday night after the US GDP figures came in at a better than expected 1.6%. The market ignored the fact that the expectations for the figure had to be ratcheted down twice from 2.5% to 1.4% recently so that they could come in under the released figure. Looking forward, the expectations are that 3rd quarter GDP will be in the neighbourhood of 2.5%. What a joke. I would not be surprised at all to see the 3rd quarter return to negative growth and that would mean that current top down forecasts are ridiculously high. As Mike Shedlock points out in his global economic analysis blog, at this stage of a recovery, four quarters following a bottom in GDP, growth is usually running at a 6% annualised pace. Instead the US is limping along at a 1.6% pace after 5% real GDP growth in the fourth quarter of last year and 3.7% in Q1. Join the dots and it is quite clear that the US economy is approaching stall speed. Technically, last night's fall in the market is a clear warning signal that the previous session's strength was purely short covering and a misguided interpretation of the GDP figures. If you have a look at this chart of the S+P 500 you can see that we are approaching the bottom of the range from the past year. The short, intermediate and long term trends are all pointing down now and we have already soaked up a lot of buying support over the past four months to keep us above this key 1010-1040 area. You can see that the current short term trend is hugging the 10 day Moving average at the moment showing that we are in strong downtrend. A failure under this 1010-1040 area is going to see not only the capitulation of stale bulls from the past four months, but also capitulation from all of the long and wrong positions of the past year. This will be the moment when no one can deny that the rally of the past year and a half is dead and buried and that the secular bear market that we have actually been in since 2000 is continuing. This is despite the US government and Ben Bernanke and his cohorts throwing everything including the kitchen sink at the problem. Memories of the crash are still fresh in people's minds and it will not take much to see the panic take hold again. I would expect to see a fairly quick move towards the low 900's in the S+P 500 from here if 1010-1040 can't hold. By quick I mean within the next few months. Friday sees the release of the Employment figures in the states and if the recent figures are anything to go by it will not show any pick up in employment which is a necessary catalyst for an improvement in the economy. The bond market is showing signs that it thinks the US is already in another recession. The Japanese Yen is going through the roof and is showing that big investors are repatriating funds and lowering their risk exposure. It appears that the equity market is sitting on its own as being optimistic about the future prospects of the economy. I don't think it is long until that shoe drops as well. I would be even so bold as to say that last night price action has set the market up for another steep fall in the next day or so. Below 1040 in the S+P 500 is a danger zone and I think this time the moons are aligned for the market to retreat from the maginot line at 1040 and scurry off into the bushes. I have been sending out warning signals to my Slipstream and Swarm subscribers and I invite you to have a look at a weekly video that I send outlining the major world markets and where I see them heading based on my technical indicators. I am very protective of my subscriber's interests and showing this information for free will not become a regular event, but I think it is ok to give you a quick look under the hood. Click on the image below to watch the Slipstream Trader market update:  Murray Dawes
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| Today's Market: The 'Bond Bubble', Equity Sentiment and Dr. Copper Posted: 30 Aug 2010 05:14 PM PDT Wall Street Cheat Sheet submits: By Brandon R. Rowley Bond market ticks down finally after momentum run, bubble talk is nonsense The Treasury bond market finally ticked down on Friday with the 30-year bond dropping 3 points to now yield 3.69%. While I would not be a buyer of T-bonds at these levels, all the bubble talk seems silly. While I would be the first to argue that these bonds are overvalued and they discount far too much economic malaise going forward at current prices, I do not see the bubble argument given the typical use of the term and what it refers to historically. Complete Story »
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| The Summer the Recovery Went Missing Posted: 30 Aug 2010 04:50 PM PDT Well, the vacation is over. We came back to the city on Saturday. On Sunday, cars rolled in all day long - piled with bicycles, beach towels, and all the paraphernalia of summer. Walking to work, we saw a mother on a bicycle with her daughter behind her. The little girl was probably about 3 years old, still sucking her thumb. The mother had come to a stop in front of a nursery. We read the whole story in the little girl's face. She looked as though she was about to cry. Big eyes rolled up towards her mother...still sucking her thumb. Her mother reassuring it. She had spent the vacation with her family. But now it was time for her mother to go back to work...and the little girl to go back to the nursery. Poor little thing... More below... And so, here we are, too, back at our own nursery...with its computer screens, desks and telephones... Let's see, what happened this summer? Easy question. The recovery went missing. Ben Bernanke said so last week...or almost. He noted that the economy wasn't quite as spiffy as he had hoped and that the Fed stands ready, willing, and able to provide more help. The stock market liked the news. After falling for many days, it rallied 164 points on Friday. Gold was flat. The New York Times reports: On Friday, Ben Bernanke, chairman of the Fed, speaking in the measured tones of a man whose word choices can cause billions of dollars to move, acknowledged that the economy was weaker than hoped, while promising to consider new policies to invigorate it, should conditions worsen. Yet even as vital signs weaken - plunging home sales, a bleak job market and, on Friday, confirmation that the quarterly rate of economic growth had slowed, to 1.6 percent - a sense has taken hold that government policy makers cannot deliver meaningful intervention. That is because nearly any proposed curative could risk adding to the national debt - a political nonstarter. The situation has left American fortunes pinned to an uncertain remedy: hoping that things somehow get better. This is where the Great Recession has taken the world's largest economy, to a Great Ambiguity over what lies ahead, and what can be done now. Economists debate the benefits of previous policy prescriptions, but in the political realm a rare consensus has emerged: The future is now so colored in red ink that running up the debt seems politically risky in the months before the Congressional elections, even in the name of creating jobs and generating economic growth. The result is that Democrats and Republicans have foresworn virtually any course that involves spending serious money. "There are many ways in which you can see us almost surely being in a Japan-style malaise," said the Nobel-laureate economist Joseph Stiglitz, who has accused the Obama administration of underestimating the dangers weighing on the economy. "It's just really hard to see what will bring us out." Japan's years of pain were made worse by deflation - falling prices - an affliction that assailed the United States during the Great Depression and may be gathering force again. While falling prices can be good news for people in need of cars, housing and other wares, a sustained, broad drop discourages businesses from investing and hiring. Less work and lower wages translates into less spending power, which reinforces a predilection against hiring and investing - a downward spiral. What kind of help can the Fed give? Well, the only kind it has left. Team Bernanke has already given the economy as much conventional, monetary medicine as he could. Rates are at zero. They've been at zero for two years. What more can you do? The Fed has also used its unconventional tool - quantitative easing - to add $1.4 trillion to the Fed's own balance sheet. It buys bonds with money it creates - out of thin air - especially for that purpose. We wish we could do that. When the Fed wants to buy something it just snaps its fingers. Presto! New money. Money that didn't exist before. How neat is that? You want a new car? You don't draw on savings. You don't wait until you've got enough money. You don't sit down meekly in front of the credit desk to see if you qualify for financing. You just write a check and tell the bank to cover it. The Fed has already done quite a bit of quantitative easing. Normally, when it buys a bond with money it invented, the new money goes away automatically when the bond matures. So, the Fed has already said it would turn over its bond holdings, rather than let them mature and expire. And now Bernanke says he is ready to go further - by buying more bonds. But the Fed is hesitating. It knows it can increase the potential money supply by buying more bonds. But it doesn't know how much good it will do. So far, the banking system is not lending...and not converting this monetary base into the kind of consumer and business loans that boost consumer prices. The Fed knows, too, that investors may begin to worry about inflation. Bond buyers may begin to worry about a crash. At some point, these nagging worries could turn into a raging panic. But the Fed doesn't know where that point is. Neither does anyone else. And nobody knows whether or not it is possible to transmit just a little bit of inflation - enough to avoid deflation and persuade consumers to shop - by means of quantitative easing. It might be like a runaway train. Once you've lost control...it's too late. Markets now seem to anticipate lower inflation rates. The threat of higher levels could incite investors, consumers and business to get rid of dollars. This would nudge inflation rates up...and build momentum towards even higher price hikes. Every little increase in inflation rates could intensify the desire to exit dollars and US bonds... Who knows where the train would stop? Meanwhile, President Obama says he's not happy with the level of growth in the US economy. Which just goes to show how preposterous and absurd the whole discussion has become. Economic growth is a function of what people choose to do with their money. Sometimes they pursue growth. Sometimes they want safety. At present, they seem to prefer to play it safe. Households save. Banks stockpile cash. Businesses put expansion plans on hold and refuse to hire. What sense does it make for an elected president to take issue with the express, legitimate and sensible desires of the people he is supposed to represent? And more thoughts... We watched "la rentree" from a sidewalk café, where we sat down to compose our thoughts. Families came back to town, pulled up in front of their apartment houses and unloaded children, bags, bikes, baskets, grandmothers, dogs, and surfboards. Young men came up out of the subway, still wearing shorts, flip flops and t-shirts - unwilling to give up their summer garb until they absolutely had to. Couples began gathering at bars and restaurants to tell each other where they had gone and what they had done. "That's part of what I like about France," said Elizabeth. "It's the structure. Everybody goes on vacation. Then everybody comes back. You know what you're supposed to do and when you're supposed to do it." "Well, you certainly don't want to do it at the same time everyone else does," we protested. "There are traffic jams 50 miles long outside Paris." "Yes, but even that gives people a sense of shared adventure and hardship... I guess I should say, also, that I like the structure itself. Taking a month off. Spending the time reconnecting with friends and family. And you all know that that's what the time is for." A young man came into our apartment Saturday afternoon - taller, tanner, more mature, confident and fashionable than we had ever seen him. His collar turned up...his hair brushed back...we scarcely recognized him. It was our youngest son, Edward, 16, who had been with a friend at the beach. "Wow...what happened to you..." his father wanted to know. "I've been sailing. Hanging out at clubs. And I met some girls..." And then a young woman came to the door. She too was tanned...but she looked tired. "I haven't slept in 4 days," said daughter Maria, after returning from a trip to Mykonos. "It's completely wild there. It's not a place you would like, Dad...partly because it's all clubs, bars, and nightlife...and its 80% gays. Not that you have anything against gays...but you wouldn't fit in at all. "I loved it...but then, I was in 'work mode.' I mean, I was surrounded by fashion photographers, designers... The beautiful people. But these are the people I work with. Agents. Actors. Producers. We went out to bars and danced all night. "I feel sorry for some of them... Who was it who said, 'parties are a waste of time?' A lot of it seemed pointless to me. But I still had a good time. And now I need to go to sleep. I'll see you tomorrow..." Regards, Bill Bonner
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| Gold Seeker Closing Report: Gold and Silver End Near Unchanged While Stocks Fall Posted: 30 Aug 2010 04:00 PM PDT Gold traded within a tight range of $1233.10 to $1238.18 and ended with a gain of 0.08%. Silver climbed to as high as $19.19 and fell to as low as $18.91 before it bounced back higher and ended unchanged on the day.
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| Posted: 30 Aug 2010 03:46 PM PDT 
Well, in 2010 life is very, very different depending on whether you are a "have" or a "have not". The recent article on CNBC referenced above described it this way.... Consumer spending in the U.S. has turned into a tale of two cities in 2010, with an entire segment of consumers splurging confidently on the finer things in life, while another segment, concerned about unemployment and with little or no discretionary income, spends only on bare necessities. So why is this happening? It is happening because the rich are getting richer and they have plenty of money to buy stuff and the poor are getting poorer and have less money to spend than ever. In case you haven't been paying attention over the past couple of decades, what we have in America today is a system that is designed to funnel as much wealth into the hands of the elite as possible. This isn't capitalism that we have in America in 2010. Instead, what we have created is a system where the laws are set up so that the power elite and their big, dominant corporations always win. Why do you think so many of America's largest corporations pay so little in taxes? Why do you think so many of them are showered with government subsidies, tax breaks and bailouts? It's not about competition anymore. It's about rigging the game in your favor. The power elite and the giant corporations they control spend millions and millions on lobbying and campaign contributions and they expect a big return on that investment. Let's take a look at one example. Many people think that Barack Obama and the Democrats are supposed to be anti-business, right? Well then why are some of Barack Obama's biggest donors the very same corporations that are receiving giant bailouts, making record profits and paying their employees billions in bonuses? Goldman Sachs was Barack Obama's second biggest donor. Microsoft was number four. Citigroup was number six. JPMorgan Chase was number seven. Time Warner was number eight. Are you starting to get the picture? Every single year, the U.S. Congress passes law after law after law that makes it easier for big corporations to dominate and makes it easier for the rich to get even richer. America's economy is not about competition anymore. It is about eliminating competition. And unfortunately for middle class Americans, the giant predator corporations that now dominate our economy are realizing that they don't really need nearly as many American workers anymore. Instead, they are slowly but surely shipping our jobs off to the other side of the world where workers are willing to work for about a tenth as much. And yet we still run out to the "big box" stores and fill up our carts with a bunch of plastic crap made on the other side of the world by these giant corporations. Meanwhile, those giant corporations are taking the profits they make out of our communities and they are taking our jobs and are shipping them overseas. So in the final analysis, is it any wonder why the income inequality gap is growing? Without small businesses having a legitimate chance to compete and without good jobs for American workers, the middle class in America is going to continue to get chewed up and spit out. The following are 30 statistics that prove that the elite are getting richer, the poor are getting poorer and the middle class is being destroyed in 2010.... The Rich Are Getting Richer 1 - As of 2007, the top 1 percent of all Americans was taking home 24 percent of the national income. This was a level that had not been seen since the days of the Great Depression. 2 - Incomes have been growing in the United States, but those at the very top of the pyramid have been gobbling up almost all of the income growth. According to Harvard Magazine, 66% of the income growth between 2001 and 2007 went to the top 1% of all Americans. 3 - Even official government figures bear out the fact that the rich are getting richer. An analysis of income-tax data by the Congressional Budget Office a few years ago found that the top 1% of all American households own nearly twice as much of the corporate wealth as they did just 15 years ago. 4- Most Americans have suffered during the last few years, but not the boys and girls down on Wall Street. New York state Comptroller Thomas DiNapoli says that Wall Street bonuses for 2009 were up 17 percent when compared with 2008. 5 - Even as the number of Americans living in poverty skyrockets, the number of millionaires just keeps growing. In fact, the number of millionaires in the United States rose a whopping 16 percent to 7.8 million during 2009. 6 - The amount of money some of these Wall Street hotshots are making is incredible. Back in 2005, the top 25 hedge fund managers earned a total of 9 billion dollars. That would be bad enough, but even in these hard economic times the rich just keep getting richer. One year after the recent financial collapse the top 25 hedge fund managers earned a total of approximately $25 billion. That breaks down to an average of $1 billion each. The truth is that the United States has been experiencing uneven prosperity for quite some time and things just seem to get worse with each passing year.
The Poor Are Getting Poorer 7 - Government anti-poverty programs are exploding in size in response to the recent economic difficulties. USA Today is reporting that a record one in six Americans are now being served by at least one government anti-poverty program. 8 - Over 50 million Americans are on now Medicaid. That figure is up more than 17 percent since the beginning of the recession. 9 - The number of Americans in the food stamp program rose to a new all-time record of 40.8 million in May. That number is up almost 50 percent since the beginning of the recession. 10 - The number of Americans who cannot afford even the basic necessities is absolutely staggering. A whopping 50 million Americans could not afford to buy enough food in order to stay healthy at some point over the last year. 11 - Compared to other industrialized nations, the United States is doing very poorly. The U.S. poverty rate is now the third worst among the developed nations tracked by the Organization for Economic Cooperation and Development. 12 - The saddest part of this is what we are doing to our children. According to one recent study, approximately 21 percent of all children in the United States are living below the poverty line in 2010. 13 - But the American people cannot provide for their families if they don't have jobs. Today there are not nearly enough jobs for everyone. In 2010, it takes the average unemployed American worker over 8 months to find a job. 14 - Approximately 10 million Americans are currently receiving unemployment insurance, which is a number that is nearly four times higher than what it was at back in 2007. 15 - The truth is that we are creating a permanent underclass of Americans that cannot get jobs. The number of Americans receiving long-term unemployment benefits has increased over 60 percent in just the past year. 16 - Increasingly, the wealth of the United States is being held in fewer and fewer hands. One study found that as of 2007, the bottom 80 percent of American households held about 7% of the liquid financial assets. 17 - It is not a good time to be living in "the bottom half" in America. The size of "the pie" being divided up among those at the low end of the wage scale is becoming really, really small. In fact, the bottom 40 percent of all income earners in the United States now collectively own less than 1 percent of the nation's wealth. The Middle Class Is Being Destroyed 18 - Even those Americans that still do have decent jobs are seeing their wealth fade rapidly. For example, U.S. families have $6 trillion less in housing wealth than they did just three years ago. 19 - Home ownership used to be a sign that one had arrived in the middle class, but in 2010 an increasing number of Americans are finding out that they simply can't afford their homes anymore. One out of every seven mortgages were either delinquent or in foreclosure during the first quarter of 2010. 20 - The reality is that incomes have just not kept up with housing costs. This has put an incredible amount of pressure on the middle class. Just how much pressure? Well, only the top 5 percent of all U.S. households have earned enough additional income to match the rise in housing costs since 1975. 21 - The debt binge middle class Americans have been on over the past couple of decades has drained many of them completely dry, and now more Americans than ever have bad credit scores. Over 25 percent of Americans now have a credit score below 599, which means that they are a very bad credit risk. 22 - A rapidly rising number of Americans are actually choosing bankruptcy as a way out of their financial problems. Nationwide, bankruptcy filings rose 20 percent in the 12 month period ending this past June 30th. 23 - The middle class manufacturing jobs that once defined so many American cities are rapidly disappearing. Despite the fact that the U.S. population has dramatically increased, less Americans are employed in manufacturing today than in 1950. 24 - These days it seems like almost everyone is looking for a good job, but very few people are finding them. According to one recent survey, 28% of all U.S. households have at least one member that is looking for a full-time job. 25 - Even many of those Americans that still have decent jobs have been hit hard by this economic downturn. A recent Pew Research survey found that 55 percent of the U.S. labor force has experienced either unemployment, a pay decrease, a reduction in hours or an involuntary move to part-time work since the recession began. 26 - The number of jobs that are evaporating is absolutely stunning. According to one analysis, the United States has lost a total of 10.5 million jobs since 2007. 27 - So where are the jobs going? It doesn't take a genius to figure it out. China's trade surplus (much of it with the United States) climbed 140 percent in June compared to a year earlier. 28 - The truth is that "globalism" and "free trade" have put middle class American workers in direct competition with the cheapest labor in the world. This is what middle class American workers must now compete against: in China a garment worker makes approximately 86 cents an hour and in Cambodia a garment worker makes approximately 22 cents an hour. 29 - Due to these difficult economic conditions, the middle class is being squeezed as never before. According to a poll taken in 2009, 61 percent of Americans "always or usually" live paycheck to paycheck. That was up significantly from 49 percent in 2008 and 43 percent in 2007. 30 - So what kind of future do our young people have in front of them? Unfortunately, things don't look pretty. Many fresh college graduates can't even get a job that will allow them to be independent. One recent survey of last year's college graduates discovered that 80 percent moved right back home with their parents after graduation. That was up significantly from 63 percent in 2006.
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| Posted: 30 Aug 2010 03:28 PM PDT
Back in April, when we discussed the inception of the IMF's then brand new New Arrangement to Borrow (NAB) $500 billion credit facility, we asked rhetorically, "If the IMF believes that over half a trillion in short-term funding is needed imminently, is all hell about to break loose." A month later the question was answered, as Greece lay smoldering in the ashes of insolvency, and the developed world was on the hook for almost a trillion bucks to make sure the tattered eurozone remained in one piece (leading to such grotesque abortions as Ireland, whose cost of debt is approaching 6%, funding Greek debt at 5%). Well, if that was the proverbial canary in the coalmine, today the entire flock just keeled over and died: today the IMF announced it "expanded and enhanced its lending tools to help contain the occurrence of financial crises." As a result, the IMF has as of today extended the duration of its existing Flexible Credit Line (FCL) to two years, concurrently removing the borrowing cap on this facility, which previously stood at 1000 percent of a member’s IMF quota, in essence making the FCL a limitless credit facility, to be used to rescue whomever, at the sole discretion of the IMF's overlords. Additionally, as the FCL has some make believe acceptance criteria (and with countries such as Poland, Columbia, and Mexico having had access to it, these must certainly be sky high), the IMF is introducing a brand new credit facility, the Precautionary Credit Line (PCL), which will be geared for members with "sound policies [which just happen to need an unlimited source of rescue funding] who nevertheless may not meet the FCL’s high qualification requirements." In other words everyone. In yet other words, the IMF as of today, has a limitless facility to bail out anyone in the world, without a maximum bound in how much is lendable. One wonders who would be stupid enough to take advantage of the gullibility of IMF's biggest backers (the US), to borrow an infinite amount of money for any reason whatsoever... And just what all this means for the imminent explosion of the amount of money in circulation...Not to mention the brand new Ben Bernanke smokescreen of having a new justification to print a few trillion dollars when Europe unexpectedly collapses yet again. In discussing the imminent need for its expanded "Crisis Prevention Toolkit" which also comes with 50cc's of adrenaline, ativan, a crash cart, and a defibrillator, Dominique Strauss-Khan (and that's Missus to you Bob Pisani), the corpulent bureaucrat said: “These decisions expand and reinforce the IMF’s crisis-prevention toolkit and mark an important step in our ongoing work with our membership to strengthen the global financial safety net. The enhanced Flexible Credit Line and new Precautionary Credit Line will enable the Fund to help its members protect themselves against excessive market volatility,” said IMF Managing Director Dominique Strauss-Kahn. What DSK did not mention is that it is precisely the mechanisms used by the Central Banking Cartel to rise the markets ever higher in light of increasingly deteriorating fundamentals, that are precisely what makes the markets excessively volatile, primary culprit of course being HFT, which is nothing but a government endorsed positive feedback loop. There's more spin:
So as the world drowns under trillions of excess debt, the IMF's solution is to throw quadrillions (or, technically, "as much as necessary") of new debt at the problem. And why not: when you have an out of control burning oil well, you nuke it (or so the legend says). And what works for geology surely works for unstable monetary systems, correct? For the specifics of the actual adjustments as part of today's "repackaging" the IMF provided the following summary: The enhancements approved today by the Executive Board include:
The new PCL is available to a wider group of members than those that qualify for the FCL. In practice, qualification is assessed in five broad areas, namely: (i) external position and market access, (ii) fiscal policy, (iii) monetary policy, (iv) financial sector soundness and supervision, and (v) data adequacy. While requiring strong performance in most of these areas, the PCL permits access to precautionary resources to members that may still have moderate vulnerabilities in one or two of these dimensions. Features of the PCL include:
And since the NAB, announced with much fanfare, capped out at $500 billion, and since almost 6 months since then have passed, the IMF is now determined to create its own version of Moore's law, by doubling the amount of borrowing availability under its biggest credit facility every six months. To wit, Bloomberg reports: "Talks are ongoing with member countries to raise the IMF lending capacity to $1 trillion as part of G-20 discussions." The $1 trillion will subsequently be doubled to $2 trillion in January 2011, then $4 in June.... and you get the exponential lidea. Also further confirming that at the end of the day it is the US that will foot these unlimited expenditures (Bernanke's inflationary wet dream has to start somewhere after all), "John Lipsky, IMF first deputy managing director, told reporters on a conference call today that the institution has enough money to fund the new credit lines. At the same time, he said he is confident that member countries will continue to demonstrate a commitment for the IMF to have the resources to make the new credit lines “credible and usable.” You hear that USA? Oh wait, it was your idea all along, we get it now. In other words, Europe - prepare: uncle Sam is coming to bail you out once again. Just please give him a reason: our banks demand it, and let's not forget, it is your patriotic duty to bail out US bank balance sheets via semi-hyperinflation. Tonight's move in the EUR and the CHF are a damn good (if on the surface counterintuitive) start. Lastly, for those lazy readers who always scroll to the very bottom looking for a video clip summarizing all previously said, you are in luck. Here is the IMF's Reza Moghadam condescending, and blatantly lying to all who care, as to what the purpose of tonight's "Crisis Prevention Toolkit" expansion is.
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| Honest Money Gold and Silver Report: Market Wrap Week Ending 8/27/10 Posted: 30 Aug 2010 02:29 PM PDT Stocks continued falling this week, although downside momentum has slowed. The market is testing its lows from May and June. If this level does not hold, then a test of the July lows is likely. As of now, it looks like the lows will hold. Read More...
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| If Lehman Had “No Idea,” Who Else is Clueless? Posted: 30 Aug 2010 02:21 PM PDT
Here’s a zinger of a news story:
Barclays Plc had no idea how big Lehman Brothers Holdings Inc.’s futures-and-options trading business was when it considered taking over the defunct bank’s derivatives trades at exchanges in 2008, a Barclays executive said.
“Lehman’s books were in such a mess that I don’t think they knew where they were,” Elizabeth James, a director of Barclays’s futures business, testified today in U.S. Bankruptcy Court in Manhattan. James worked on Barclays’s purchase of Lehman’s brokerage during the 2008 financial crisis.
I’ve railed for months that the central issue surrounding the Financial Crisis (derivatives) was not only misunderstood but completely ignored by the mainstream financial media. Here we are, nearly two years after Lehman Brothers went bust, and they’re telling us that Lehman had “no idea” what its options and futures exposure was.
Let’s put this into perspective.
The notional value of the derivatives market at the time that Lehman went bust was somewhere between $600 trillion and $1 Quadrillion (1,000 trillions). It was a market of inter-linked paper contracts entangling virtually every financial institution (including some non-financials), country (Greece, Italy used derivatives to get into the European union), and county (Birmingham Alabama is one example) in the world. As a market it was at least 20 times larger than the world stock market and somewhere north of 10 time World GDP.
In other words, this was the giant white elephant in the living room.
And here’s Lehman brothers, one of Wall Streets’ finest, most respected financial institutions which had been in business for over 150 years announcing that it had “no idea” “if it had sold $2 billion more options than it had bought, or whether it owned $4 billion more than it had sold.”
In today’s world of trillion dollar bailouts, $2-4 billion doesn’t sound like much, so let’s give some perspective here… in its golden days, Lehman Brother’s market cap was roughly $47 billion. So you’re talking about bets equal to an amount between five and 10% of its market cap. Not exactly chump change.
And Lehman had no idea where it was or how much it really owed.
Mind you, we’re only addressing Lehman’s options and futures derivatives, we’re completely ignoring its mortgage backed securities, collateralized debt obligations (CDOs), and other Level 3 assets. Options and futures are literally the “tip of the iceberg,” the most visible portion of the behemoth that was Lehman’s off balance sheet derivative issues. After all, these are regulated securities unlike most derivatives.
Now, if the above statement doesn’t send shivers down your spine, have a look at the notional value of derivatives exposure at the top five financial institutions in the US (mind you, this chart is denominated in TRILLIONS).
If Lehman had “no idea” what it owned even when it came to options and futures (regulated derivatives), what are the odds that these other firms, whose derivative exposure is tens if not hundreds of times larger than that of Lehman’s, might similarly be “in the dark’ regarding their risk?
Moreover, who on earth might be on the opposite end of these deals? Other US counties like Birmingham Alabama (which JP Morgan transformed into 3rd world country status)? Other countries like Italy or Greece (who used Goldman’s financial engineering to get into the European Union)? My next-door neighbor’s house? Tim Geithner’s long-lost tax returns? WHO KNOWS?
The point is that the very same issues that nearly took the financial world under in 2008 still exist today. In fact, this time around the systemic risk is even more severe.
Consider that the Credit Default Swap (CDS) market which nearly took the financial system down in 2008 was roughly $50-60 trillion in size. In contrast, the interest rate based derivative market is in the ballpark of $500+ trillion.
Indeed, US commercial banks alone have $182 TRILLION in notional value of interest rate based derivatives outstanding right now. To put that ridiculous number in perspective it’s 13 times US GDP and roughly three times WORLD GDP.
Fed Chairman Ben Bernanke has promised to maintain Zero Interest Rate Policy (ZIRP) for as long as possible. Now you know why. But even this guarantees nothing because at some point the bond vigilantes that visited Greece, Hungary, and Ireland will set their sights on the US. When that happens, inevitably interest rates will rise and the financial system will once again begin to implode only on a scale TEN TIMES that of 2008.
I realize this may sound ridiculous now, but all warnings of doom sounded ridiculous in 2008 right up until the world imploded (I was warning as far back as April 2008 that a full-scale Crash was coming). Again, remember Lehman Brothers had “no idea” what its options and future positions were… again, these were for regulated derivatives… do you think this ignorance was somehow a special or unique?
Or do you think Lehman’s admission is just a taste of what’s to come?
Good Trading! Graham Summers
PS. If you’re worried about the future of the stock market and have yet to take steps to prepare for the Second Round of the Financial Crisis… I highly suggest you download my FREE Special Report specifying exactly how to prepare for what’s to come.
I call it The Financial Crisis “Round Two” Survival Kit. And its 17 pages contain a wealth of information about portfolio protection, which investments to own and how to take out Catastrophe Insurance on the stock market (this “insurance” paid out triple digit gains in the Autumn of 2008).
Again, this is all 100% FREE. To pick up your copy today, www.gainspainscapital.com and click on FREE REPORTS.
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| Our Ever Shrinking Pension Payouts? Posted: 30 Aug 2010 01:39 PM PDT
Becky Barrow of the London Mail reports, Our ever shrinking pension payouts: The millions facing lowest returns on investments since records began:
Pension poverty is a recurring theme on my blog. I saw this coming years ago, but it's much worse than I envisioned. Oddly enough, some people think we shouldn't address the retirement crisis, just let these people suffer and live on a fraction of what they were expecting to retire on comfortably.
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| Bank of America Now Proudly Exporting HFT Market Death And Destruction To Asia Posted: 30 Aug 2010 01:37 PM PDT
Feel like it is time to spread the market annihilation love courtesy of "any minute now" HFT-induced flash crashes? Have no fear, Bank of America is here. "High-frequency trading in the US and Europe has grabbed most attention in the market, but similar activities are quietly taking off in Asia as well." Thusly begins a pamphlet by BofA/ML's Carrie Cheung which explains the tremendous "advantages" that HFTs offer to any local market. Not mentioned is that these advantages include drastic market destabilization, and that the "attention" is of the "get that thing the hell out of here" variety. At least we get to learn some very useful facts about the proliferation of the little bloodsucking algos in the Pacific rim such as...
In conclusion, use Bank of America cause their HFT expertise in setting landmines in Asian stock markets is second to none: "Asia’s markets are evolving gradually. In addition, the region’s growing economic power and upgrades in technology will definitely make this the next hot spot for high-frequency trading." Full two page ad of BofA exporting WMDs to the Pacific rim: h/t Joel
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| Swiss Franc Explodes As Asia Opens, SNB Intervention Bells Ringing Loud Posted: 30 Aug 2010 12:40 PM PDT
EURCHF has just taken out all stops as it plunged by almost 60 pips in the span of a few minutes as Japan opens.... Which opened about 2% down... Which goes to show just the idiocy levels of our markets - there was nothing incremental from last night's BoJ decision, so the Nikkei should have been dropping then. But instead it decided to trade way higher and only plunge once Made In New York Atari algos told it it was safe to plunge. Either way, set your alarm clocks to around 5 am, which is when the SNB tends to intervene most often, and have those upside EURCHF stops ready, as the pair is wound so tight it is just waiting for the Hildebrand match: the (very temporary) bounce, which will cost the SNB another CHF10 billion will likely send the CHF about 150-200 pips lower, only to retrace all losses imminently. Either way, tomorrow will be a day of fireworks. Also, time to put on all those way out of the money GTC bids.
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| Exhaustive San Fran Fed Study Finds That, Gasp, Immigrants Are Good For The Economy Posted: 30 Aug 2010 11:41 AM PDT
The San Fran Fed conducts yet another mindnumbingly (and taxpayer funded) obvious study, this time uncovering what everyone with half a brain knows: namely that immigrants are good for the economy. But don't tell that to all those who want the H1-B program destroyed and to seal of the Mexico-Texas border by digging a mile deep trench filled with sharks with laser beams attached to their heads. Setting aside the fact that absent a surge in immigration, and a forced household formation impetus, the demand curve of the home price equilibrium chart will continue shrinking until homes will be worth less than half, to have to explain to other economists that immigrants are a net-net positive just makes one wonder about the inbreeding trends prevalent within the Keynesian shaman elite (how about the FRBSF do a study on that for a change?). But of course, stating the obvious would not get one too far in the citation-demanding economotenure track, so instead author Giovanni Peri, uses polysyllabic words such as: "Statistical analysis of state-level data shows that immigrants expand the economy’s productive capacity by stimulating investment and promoting specialization. This produces efficiency gains and boosts income per worker. At the same time, evidence is scant that immigrants diminish the employment opportunities of U.S.-born workers." And since none of those who are convinced that immigration, and not laziness, or flawed fiscal policy, is the main reason why nobody is not only having a job, but looking for one, will actually read this paper, we once again ask politely and simply: "why the hell was this thing commissioned, and how much did the national deficit increase because of its completion?" Either way, here is the full thing, for your single-ply amusement: The Effect of Immigrants on U.S. Employment and Productivity The effects of immigration on the total output and income of the U.S. economy can be studied by comparing output per worker and employment in states that have had large immigrant inflows with data from states that have few new foreign-born workers. Statistical analysis of state-level data shows that immigrants expand the economy's productive capacity by stimulating investment and promoting specialization. This produces efficiency gains and boosts income per worker. At the same time, evidence is scant that immigrants diminish the employment opportunities of U.S.-born workers. Immigration in recent decades has significantly increased the presence of foreign-born workers in the United States. The impact of these immigrants on the U.S. economy is hotly debated. Some stories in the popular press suggest that immigrants diminish the job opportunities of workers born in the United States. Others portray immigrants as filling essential jobs that are shunned by other workers. Economists who have analyzed local labor markets have mostly failed to find large effects of immigrants on employment and wages of U.S.-born workers (see Borjas 2006; Card 2001, 2007, 2009; and Card and Lewis 2007). This Economic Letter summarizes recent research by Peri (2009) and Peri and Sparber (2009) examining the impact of immigrants on the broader U.S. economy. These studies systematically analyze how immigrants affect total output, income per worker, and employment in the short and long run. Consistent with previous research, the analysis finds no significant effect of immigration on net job growth for U.S.-born workers in these time horizons. This suggests that the economy absorbs immigrants by expanding job opportunities rather than by displacing workers born in the United States. Second, at the state level, the presence of immigrants is associated with increased output per worker. This effect emerges in the medium to long run as businesses adjust their physical capital, that is, equipment and structures, to take advantage of the labor supplied by new immigrants. However, in the short run, when businesses have not fully adjusted their productive capacity, immigrants reduce the capital intensity of the economy. Finally, immigration is associated with an increase in average hours per worker and a reduction in skills per worker as measured by the share of college-educated workers in a state. These two effects have opposite and roughly equal effect on labor productivity. The method A major challenge to immigration research is the difficulty of identifying the effects of immigration on economic variables when we do not observe what would have happened if immigration levels had been different, all else being equal. To get around this problem, we take advantage of the fact that the increase in immigrants has been very uneven across states. For example, in California, one worker in three was foreign born in 2008, while in West Virginia the comparable proportion was only one in 100. By exploiting variations in the inflows of immigrants across states at 10-year intervals from 1960 to 2000, and annually from 1994 to 2008, we are able to estimate the short-run (one to two years), medium-run (four years), and long-run (seven to ten years) impact of immigrants on output, income, and employment. To ensure that we are isolating the effects of immigrants rather than effects of other factors, we control for a range of variables that might contribute to differences in economic outcomes. These include sector specialization, research spending, openness to trade, technology adoption, and others. We then compare economic outcomes in states that experienced increases in immigrant inflows with states that did not experience significant increases. As a further control for isolating the specific effects of immigration, we focus on variations in the flow of immigrants that are caused by geographical and historical factors and are not the result of state-specific economic conditions. For example, a state may experience rapid growth, which attracts a lot of immigrants and also affects output, income, and employment. In terms of geography, proximity to the Mexican border is associated with high net immigration because border states tend to get more immigrants. Historical migration patterns also are a factor because immigrants are drawn to areas with established immigrant communities. These geography and history-driven flows increase the presence of immigrants, but do not reflect state-specific economic conditions. Hence, economic outcomes associated with these flows are purer measures of the impact of immigrants on economic variables. The short- and the long-run effects of immigrants Figure 1  Immigration effects on employment, income, and productivity vary by occupation, job, and industry. Nonetheless, it is possible to total these effects to get an aggregate economic impact. Here we attempt to quantify the aggregate gains and losses for the U.S. economy from immigration. If the average impact on employment and income per worker is positive, this implies an aggregate “surplus” from immigration. In other words, the total gains accruing to some U.S.-born workers are larger than the total losses suffered by others. Figures 1 and 2 show the response of key economic variables to an inflow of immigrants equal to 1% of employment. Figure 1 shows the impact on employment of U.S.-born workers and on average income per worker after one, two, four, seven, and ten years. Figure 2 shows the impact on the components of income per worker: physical capital intensity, as measured by capital per unit of output; skill intensity, as measured by human capital per worker; average hours worked; and total factor productivity, measuring productive efficiency and technological level. Some interesting patterns emerge. Figure 2  First, there is no evidence that immigrants crowd out U.S.-born workers in either the short or long run. Data on U.S.-born worker employment imply small effects, with estimates never statistically different from zero. The impact on hours per worker is similar. We observe insignificant effects in the short run and a small but significant positive effect in the long run. At the same time, immigration reduces somewhat the skill intensity of workers in the short and long run because immigrants have a slightly lower average education level than U.S.-born workers. Second, the positive long-run effect on income per U.S.-born worker accrues over some time. In the short run, small insignificant effects are observed. Over the long run, however, a net inflow of immigrants equal to 1% of employment increases income per worker by 0.6% to 0.9%. This implies that total immigration to the United States from 1990 to 2007 was associated with a 6.6% to 9.9% increase in real income per worker. That equals an increase of about $5,100 in the yearly income of the average U.S. worker in constant 2005 dollars. Such a gain equals 20% to 25% of the total real increase in average yearly income per worker registered in the United States between 1990 and 2007. The third result is that the long-run increase in income per worker associated with immigrants is mainly due to increases in the efficiency and productivity of state economies. This effect becomes apparent in the medium to long run. Such a gradual response of productivity is accompanied by a gradual response of capital intensity. While in the short run, physical capital per unit of output is decreased by net immigration, in the medium to long run, businesses expand their equipment and physical plant proportionally to their increase in production. How can these patterns be explained? The effects identified above can be explained by adjustments businesses make over time that allow them to take full advantage of the new immigrant labor supply. These adjustments, including upgrading and expanding capital stock, provide businesses with opportunities to expand in response to hiring immigrants. This process can be analyzed at the state level (see Peri and Sparber 2009). The analysis begins with the well-documented phenomenon that U.S.-born workers and immigrants tend to take different occupations. Among less-educated workers, those born in the United States tend to have jobs in manufacturing or mining, while immigrants tend to have jobs in personal services and agriculture. Among more-educated workers, those born in the United States tend to work as managers, teachers, and nurses, while immigrants tend to work as engineers, scientists, and doctors. Second, within industries and specific businesses, immigrants and U.S.-born workers tend to specialize in different job tasks. Because those born in the United States have relatively better English language skills, they tend to specialize in communication tasks. Immigrants tend to specialize in other tasks, such as manual labor. Just as in the standard concept of comparative advantage, this results in specialization and improved production efficiency. Figure 3  Note: The data on average communication/manual skills by state are from Peri and Sparber (2009), obtained from the manual and communication intensity of occupations, weighted according to the distributional occupation of U.S.-born workers. If these patterns are driving the differences across states, then in states where immigration has been heavy, U.S.-born workers with less education should have shifted toward more communication-intensive jobs. Figure 3 shows exactly this. The share of immigrants among the less educated is strongly correlated with the extent of U.S.-born worker specialization in communication tasks. Each point in the graph represents a U.S. state in 2005. In states with a heavy concentration of less-educated immigrants, U.S.-born workers have migrated toward more communication-intensive occupations. Those jobs pay higher wages than manual jobs, so such a mechanism has stimulated the productivity of workers born in the United States and generated new employment opportunities. To better understand this mechanism, it is useful to consider the following hypothetical illustration. As young immigrants with low schooling levels take manually intensive construction jobs, the construction companies that employ them have opportunities to expand. This increases the demand for construction supervisors, coordinators, designers, and so on. Those are occupations with greater communication intensity and are typically staffed by U.S.-born workers who have moved away from manual construction jobs. This complementary task specialization typically pushes U.S.-born workers toward better-paying jobs, enhances the efficiency of production, and creates jobs. This task specialization, however, may involve adoption of different techniques or managerial procedures and the renovation or replacement of capital equipment. Hence, it takes some years to be fully realized. Conclusions The U.S. economy is dynamic, shedding and creating hundreds of thousands of jobs every month. Businesses are in a continuous state of flux. The most accurate way to gauge the net impact of immigration on such an economy is to analyze the effects dynamically over time. Data show that, on net, immigrants expand the U.S. economy’s productive capacity, stimulate investment, and promote specialization that in the long run boosts productivity. Consistent with previous research, there is no evidence that these effects take place at the expense of jobs for workers born in the United States. References Borjas, George J. 2006. “Native Internal Migration and the Labor Market Impact of Immigration.” Journal of Human Resources 41(2), pp. 221–258. Card, David. 2001. “Immigrant Inflows, Native Outflows, and the Local Labor Market Impacts of Higher Immigration.” Journal of Labor Economics 19(1), pp. 22–64. Card, David. 2007. “How Immigration Affects U.S. Cities.” University College London, Centre for Research and Analysis of Migration Discussion Paper 11/07. Card, David. 2009. “Immigration and Inequality.” American Economic Review, Papers and Proceedings 99(2), pp. 1–21. Card, David, and Ethan Lewis. 2007. “The Diffusion of Mexican Immigrants during the 1990s: Explanations and Impacts.” In Mexican Immigration to the United States, ed. George J. Borjas. Chicago: The University of Chicago Press. Peri, Giovanni, and Chad Sparber. 2009. “Task Specialization, Immigration, and Wages.” American Economic Journal: Applied Economics 1(3), pp. 135–169. Peri, Giovanni. 2009. “The Effect of Immigration on Productivity: Evidence from U.S. States.” NBER Working Paper 15507.
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| More on “Professional” Credit Cards Posted: 30 Aug 2010 11:23 AM PDT John Ulzheimer, President of Credit.com, provides a few more details about the surge in credit card company mailings for "Professional Cards" that are exempt from new regulations imposed by the Card Act (see the previous post for some context). I'm probably the exception to the rule here, but, it seems to me that unless you have an excellent excuse (e.g., medical bills or some other emergency), if you're over the age of 30 or 35 and you're paying credit card companies any money in interest or fees, you're going about your finances all wrong and you deserve to be their debt serf.
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| A Picture's Worth A Thousand Words Posted: 30 Aug 2010 11:20 AM PDT
Quick follow up on our Earnings Revisions post from yesterday. In that post, we explained that:
We show an example of this optimism below. Cummins is a global leader in the design, manufacturing and distribution of engines and related technology. The company’s engines are found in a wide range of vehicles and equipment from emergency vehicles to 18-wheelers, berry pickers to 360-ton mining haul trucks. Management has done a tremendous job managing through the crisis. Costs have been cut relentlessly, resulting in a leaner organization with greater operating leverage. The balance sheet is rock solid. Not to mention its image as a ‘safe’ play on the secular growth of emerging market infrastructure development. It’s no wonder the street is in love with the stock. We have a difficult time arguing any of the points above. Our concern is that the bar is set awfully high just as we stare right into a cyclical slowdown at best and more likely, something much more problematic. Note the company’s historic EBIT margins below. Margins increased from 1.4% at the start of the decade to a peak of 9.4% as the global economy marched straight up through 2006 on the back of the Chinese growth engine fueled by a credit-obsessed American consumer. Then . . . something changed. And something changed quite quickly. As economic growth screeched to a halt in 2008, margins followed, moving in a straight line back to 1.7% in Q3-09. But with ‘a little’ help from the greatest monetary and fiscal stimulus in economic history, orders reappeared and a stream-lined Cummins surprised analysts quarter after quarter, in route to a magical V-Shaped Recovery. So what’s next? In classic fashion, consensus has basically straight-lined that v-shaped recovery over the next few years, as shown by the last piece of the chart highlighted in red and representing consensus estimates through 2011. Wall Street bulls – of which there are plenty, as none of the analysts covering the stock are brave enough to rate it less than ‘hold’ – are now projecting that the company’s margins reach record highs above 11% over the next eighteen months. Such levels would be nearly 200 basis points above the prior peak reached at the height of the credit-induced global growth bubble. Possible? Sure. Likely? Eh. Not to mention that these record margins on record sales would be achieved in a global economy in the grips of an extended deleveraging process with much of the developed world entering recession or battling depression. We can’t help but wonder, who’s buying all this shit?
Disclosure: At the time of publication, the author did not hold a position in Cummins, although positions may change at any time.
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| Big Commodity Trader: U.S. President Is Only A Puppet Posted: 30 Aug 2010 11:14 AM PDT (snippet) RW: I think that could be true. I really believe that 80%–90% of the American public is regularly sold a bill of goods by the Wall Street media from New York and Washington. It just keeps coming day after day and, after awhile, it wears them out. I think the majority of Americans still believe a lot of this information. From my point of view, a good portion of it is just nonsense. TGR: If you could speak directly to the public and tell them what you believe they should know, what would you tell them? RW: Well, I would say that the U.S. president is not really the man in charge. The people who are in charge of world economics, world currencies, governments and corporations are a shadow political group that has a great deal of power. Presidents in the U.S. are just puppets. They're selected for their ability to do what they're told. Congress is basically just a tool for these corporations and outsiders to manipulate the rules to get what they want. I think that's obvious when you look at what's happened with all the offshoring of American jobs. The issue that's got a lot of people disturbed right now is the open border between Mexico and the United States. That exists because corporations want cheap labor. And there are obviously a lot of people involved in the Mexican drug trade. There's a sheriff in Arizona who said that even members of Congress are involved. Until the teeth are taken out of pharmaceutical economics, these things are going to continue. Recently it's become much worse because of what's happened with the global banks and derivatives market. That's what caused the Lehman Brothers collapse and took down the global economy. To make it worse, then–Treasury Secretary Henry (Hank) Paulson basically took government taxpayer money and gave it to the banks. He conjectured that, if we didn't, the global financial system would implode. Quite frankly, I think it would've been better if we had taken our medicine and just moved on. But what's happened now is that 90% of the toxic debt in those banks remains in those banks. They've taken it off balance sheets and put it into other corporations or partnerships (i.e., offshored it). They're just holding the money given to them by the U.S. government earning bond interest. They're not making loans to improve the economy. More Here.. 
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