Gold World News Flash |
- What Bernanke Doesn’t Understand
- Coded Messages to Buy More Gold
- EU Treasury Overkill?.. Failure of the Famine Meme
- LGMR: Gold at $1250, Silver Nears $20/Oz, Obama's $150bn Labor Day Promise "Austere"
- Globalism Destroys America: 10 Reasons Why The World Trade Organization Is Bad For The United States Economy
- Is Buying Gold Now a Speculation?
- Gold at $1250, Silver Nears $20/Oz…
- Fifty Years of Suppressing Silver
- Hyperinflation Argentina: Cash Only Economy
- The Needs Justify the Ends
- Eine Not So Kleine AUDJPY Nacht Movement
- Jim Rickards Tells His Clients To Get Out Of Stocks And Discusses The Fed's Final "Golden" Bullet
- Graham Summers’ Weekly Market Forecast (line in the sand edition)
- Close to Fair Value, But Still Unbalanced
- Quantifying The Top 10 China Risks
- What Bernanke Doesn't Understand
- Hatzius Makes The Strongest Case For QE2 Yet, Or How $1 Trillion In QE Buys 0.5% In GDP (And Increasingly Less)
- Gold and Silver's Daily Review
- Gold at $1250, Silver Nears $20/Oz, as Obama's $150bn Labor Day Promise Called "Austere" by Krugman
- Vladimir Putin to step into $450m Kazakh gold feud
- Will Unemployment Continue to Climb?
- Sole European Bank Needs $60 Million USD And Comes Crawling To ECB, Confirming USD-Libor Funding Process Impaired
- Not a Good Year to Have a Labor Day
- Goldman: "One Could Make The Case That GDP Growth Looks Weaker Than It Did A Week Ago"
- Pathetic and absurd
- Bernanke, Bubble Denier: The Greatest Fed Tool of All
- “Obvious” US Bonds Junk… Considering Key Ratios, Future Outlook
- LGMR: Gold at $1250, Silver Nears $20/Oz, Obama's $150bn Labor Day Promise "Austere"
| What Bernanke Doesn’t Understand Posted: 06 Sep 2010 06:55 PM PDT This week’s Outside the Box is an incendiary blog written by Steve Keen on debt deflation and GDP growth. I am not certain as to his math (is he double counting debt and consumer spending?) but he does illustrate very well the problem of a deleveraging recession, which I have been writing about for a long time. This is just a different type of recession we are in. So rather than fret over the absolute certainty of the math, read this for an understanding of the nature of the problems we face. He has the direction right, I think, which is the important part for us to grasp. Then he just now posted a second blog on Quantitative Easing, which he ends with pointing out why it might “work” but also suggests that it would lead to yet another financial bubble. Again, very Outside the Box thinking. It has me going ‘hmmm.” Steve Keen is Associate Professor of Economics & Finance at the University of Western Sydney, and author of the popular book Debunking Econo...
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| Coded Messages to Buy More Gold Posted: 06 Sep 2010 06:55 PM PDT Bloomberg.com had the headline "Bank of Korea 'Under Pressure' to Boost Gold Holdings, Shinhan's Oh Says," which was perfectly understandable, although I have no idea what "Shinhan's Oh Says" means. I suspect that Shinhan is some guy who just found out that purposely not buying gold is a really stupid idea, and who, upon realization of his rookie-like mistake, said, "Oh!" Curious, I read further only to discover the brouhaha is that "The Bank of Korea, which has shunned adding gold to foreign-exchange reserves," is now doing so, which fulfills my original hypothesis of some guy named Shinhan making a stupid investing mistake! I can see that I am hot in deciphering the news! Inspired, I then read that the central bank of Korea is "under pressure" to consider purchases of gold "as the global economy worsens and the price advances," says Shinhan BNP Paribas Asset Management Co., which seems kind of weird to be the last name of some guy named Shinhan who says "Oh." Then, to make it eve...
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| EU Treasury Overkill?.. Failure of the Famine Meme Posted: 06 Sep 2010 06:55 PM PDT EU Treasury Overkill? Monday, September 06, 2010 – by Staff Report Jean-Claude Trichet Brussels plans 'treasury' for EU ... Brussels is to push for the creation of a form of "treasury" for the European Union with powers to issue bonds and reinforce fiscal integration ... "This will be a very effective tool to harmonise budget policies, but the way ahead may be very tough," he said. Germany is likely to balk at talk of an EU debt union, or "Transferunion" as it is described in Gothic terms by Germany's tabloid press. Jean-Claude Trichet (left), the head of the European Central Bank, called for a "quantum leap in terms of surveillance" to ensure that the financial crisis is never repeated. Mr Trichet said it would be extremely difficult to change the Lisbon treaty in the current climate but called on EU leaders to "exploit all possibilities" in the sub-clauses of existing legislation to advance policing tools. The EU institutions agreed last week on t...
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| LGMR: Gold at $1250, Silver Nears $20/Oz, Obama's $150bn Labor Day Promise "Austere" Posted: 06 Sep 2010 06:55 PM PDT London Gold Market Report from Adrian Ash BullionVault 08:20 ET, Mon 6 Sept Gold at $1250, Silver Nears $20/Oz, as Obama's $150bn Labor Day Promise Called "Austere" by Krugman THE PRICE OF GOLD rose back above $1250 an ounce for Dollar investors on Monday in what dealers called "quiet" Asian and early London trade, while European stock markets also ticked higher together with government bonds. Silver prices came within one cent of $20 per ounce, extending last week's 30-month highs. "Gold is sitting in a very tight range," says Andrey Kryuchenkov at VTB Capital in London, speaking to Reuters. "The downside will be limited because of seasonality, with Asian buyers really looking to buy on any dips." "My order book is filling-up, and I expect more to come as the Rupee has appreciated," a state-bank gold dealer in Mumbai told the Economic Times this morning. "I have plenty of orders below $1240," said another. Hong Kong dealers today reported "physic...
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| Posted: 06 Sep 2010 06:05 PM PDT 
No, it is not. The following are 10 reasons why the World Trade Organization is bad for America..... 1 - The WTO is not accountable to the American people or to any other voters around the globe. It is a sprawling bureaucracy that wields an almost unbelievable amount of power that is completely unchecked by democratic processes. The American people could try to elect a large number of politicians who are in favor of pulling the United States out of the WTO, but considering the fact that both major political parties are very much pro-WTO at this point, that is simply not going to happen. 2 - The WTO acts as the legislature, the executive and the judiciary in matters of world trade. The WTO has the authority to impose punishments on member nations, and it has not been shy about exercising this authority. In essence, the WTO is the judge, the jury and the executioner and if anyone does not like this it is too bad for them. 3 - Many of the WTO regulations were authored word for word by the big global predator corporations that now dominate the world economy. It is an open secret that the WTO is dominated by international bankers, large international corporations and the most developed nations. Whenever new negotiations are conducted, it almost always seems as though it is the "sharks" that end up winning in the end. 4 - Any nation that attempts to protect itself against the negative effects of globalism and free trade is quickly reprimanded by the WTO. In essence, the WTO is the enforcement arm for the powerful interests who are determined to merge us all into a one world economy. 5 - The WTO allows countries to sue each other. This has been primarily used by the wealthy countries to push around the smaller, less developed nations. 6 - The WTO allows global corporations to sue countries. Forget about sovereign immunity in matters governed by the WTO. Under the WTO, the monolithic corporations who benefit the most from free trade can easily push around the smallest and least developed nations. 7 - The WTO is widening the gap between rich and poor. Under the globalized system of free trade we are all living under, all wealth is slowly but surely being transferred into the hands of the very wealthy while the rest of us are left standing around trying to figure out how the game was rigged. 8 - The WTO forces the United States to open its doors to unsafe products. For example, the United States had been very concerned about the safety of Chinese poultry products. But the WTO ruled in China's favor and now the U.S. must allow China to import massive amounts of unsanitary chicken. 9 - Under the WTO, labor has become a global commodity. Now American workers have been put in direct competition with the cheapest labor in the world. Millions of American workers have lost their jobs and factories are closing across the United States at a staggering pace. 10 - The American people are deeply upset about the state of the economy, but they don't even understand what is going on. According to a new CNN/Opinion Research Corporation survey, 81% of Americans rate the U.S. economy as "poor". Americans continue to get angrier and angrier about the economy and they want someone to "fix" it. But what they don't understand is that under the new global system that we are being merged into, it is intended that the standard of living for the poorer nations will go up while our standard of living goes down. In the end, there is supposed to be "equality" all over the world. But what kind of equality will that be? If current trends hold up, the top 1% of all income earners will become fabulously wealthy, while the remainder of us will work our lives away for their giant global corporations for near slave labor wages. A reader of my column named Joe recently left a comment that does a good job of summarizing the kind of world that we are heading into.... I still remember the 60 Minutes program that showed an old company in Massachusetts that made winter jackets and pants. The old timer who owned the company was a wonderful character. He worked hard all his life, made excellent clothes, and treated all his employee's like his family. Dan Rather followed him throughout the mill as he interacted with each employee, the old man knew every job because he probably had to do them all at one time. This man had integrity, a hard work ethic, honesty, and every other leadership quality. His employees loved him and respected him. Fast forward to today and we have companies like Nike and Gap who entrap their young girl employees with a scam ad in a newspaper about a job. Then they are caged into a factory with barbed wire and security guards and have to work for .35 cents per hour. The girls have to pay "rent" for a bunk bed and a little food, a debt they can never repay for their freedom. And we buy their clothes at Wal-Mart. Where did we go off the tracks? How did we go so wrong? The truth is that the giant global predator corporations are going to continue to use the WTO (and other globalist organizations such as the IMF and the World Bank) to rig the game in their favor and to push us all into one global market and into one global labor pool. The WTO is not good for the U.S. economy and it never will be. But the vast majority of our politicians are 100 percent behind this system which is designed to deindustrialize the United States, ship our jobs overseas and substantially lower our standard of living. Will the American people wake up and realize what is going on? No, "Dancing with the Stars" has just announced their new cast, American Idol is looking for some new judges and football season is starting, so the American people are going to have their hands full for a while.
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| Is Buying Gold Now a Speculation? Posted: 06 Sep 2010 06:03 PM PDT Adrian Ash submits: Since gold stopped being money, it's become 75% more valuable on average... SO GOLD is now at "fair value" according to Bill Bonner, long-time gold bug (and my former boss/partner-in-crime at The Daily Reckoning's London HQ). Complete Story »
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| Gold at $1250, Silver Nears $20/Oz… Posted: 06 Sep 2010 05:33 PM PDT
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| Fifty Years of Suppressing Silver Posted: 06 Sep 2010 04:41 PM PDT Very long article by Jeff Nielsen, but well worth the read. http://seekingalpha.com/article/2239...r?source=email
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| Hyperinflation Argentina: Cash Only Economy Posted: 06 Sep 2010 04:38 PM PDT BUENOS AIRES, Argentina – The "marker" lurks inside the bank, looking for people pulling large amounts of cash from a safe deposit box or bank account. The gunmen linger outside, usually on motorcyles, waiting to make their move. For people like Carolina Piparo, eight months pregnant and carrying a purse full of cash for a down payment on her first home, gangs like these are an unavoidable risk in today's Argentina, where the underground cash economy is fueling a frightening new crime wave. The July 29 attack that left Piparo comatose and killed her child added to a toll of thousands of crime victims — 4,998 reported "withdrawal robberies" in the first half of this year alone, according to Louis Vicat, a security consultant who keeps track privately because the government hasn't published detailed crime statistics since 2007. Many victims don't even report being robbed, because they wouldn't be able to explain to tax agents where they got the money, says Vicat, who retired as deputy internal affairs chief of the Buenos Aires provincial police. And yet cash on the table is simply the only way to do business — even when buying homes or entire companies — for many people in Argentina. Transferring such money electronically would solve the problem in an instant. But in a society where income tax evasion runs about 50 percent and taxes eat up 65 percent of the money people do declare, many people are reluctant to use banks that way. Even people who want to pay all their taxes have a hard time complying, because there's always someone demanding to hide all or part of the transaction by paying in cash — preferably U.S. dollars. (snippet) Add inflation of 25 percent or more this year, and people have many reasons to avoid transferring money from one account to another. 
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| Posted: 06 Sep 2010 04:36 PM PDT Remember back in the good old days? Back when there was no government in Canberra and stocks rallied because investors knew there wouldn't be any moron law makers to pass moron laws? Ah yes...the good old days. Sigh. If there's a deal that puts a Labor/Greens/Independent government in place, you might expect that to be a negative for shares, inasmuch as it could mean mining tax and, down the track, some kind of carbon tax. However that negativity could be offset by the probability that the Reserve Bank Board, meeting in Adelaide today, will decide that the price of money in Australia is neither too high nor too low, but just right. And in any case, everything is getting better and better anyway. The GFC is over and Australia will always have Chin, whether it likes it or not. BIS Shrapnel chief economist Frank Gelber - in tour de force of conventional thinking - is quoted in today's Age speaking at a conference in Brisbane and saying, "All of the pre-conditions that led to the GFC are gone." Gone baby gone. Or at least hidden. For example, today's Wall Street Journal reports that the so-called "stress tests" of 91 European banks earlier this year may not have included the full exposure those banks had to the sovereign debt of nations like Spain, Italy, and Portugal. This is an important point because, according to spreads in the credit market, there is a fair chance that a lot of that debt will be marked down, if not defaulted on outright. The Journal article says that, "Some banks excluded certain sovereign bonds from their tallies, and many reduced the sums to account for 'short' positions they were holding - facts that neither regulators nor most banks disclosed when the test results were published in late July." Shocking, innit? This reminds us of a point we made last November in Canberra speaking at the Gold Standard Institute conference: the collateral of the global banking system was STILL compromised by bad mortgage debt. But in some places, the bad mortgage debt and merely been traded for bad sovereign debt, with the risk transferred to the public balance sheet. The fundamental health of the bankingsystem - the quality of assets - had not substantially improved since the heigh of the GFC. In fact, that seems truer than ever in Europe. And don't even get us started on America. Banks are stuffed to the gills with bad housing loans. One of the chief drivers of bank earnings in the last reporting quarter was based on reduced provisions for loan losses. But that does not seem like a real improvement in bank earnings, especially since the underlying conditions in the American housing market (and thus the American banking system) are, to be precise, really bad. Yet as we are often reminded by patient readers, that is America. This is Australia. Australia is not America. Who cares what happens over there? As Dr. Gelber reminds us, "The mining drivers are here for another five years at least. Five years from now this economy is going to be really strong coming from an undersupplied, under capacity situation...The boom won't mature in 18 months, it will take six or seven years, or eight or nine." Well. Gee. If he's right, there is absolutely nothing to worry about, except maybe inflation when all that Asian cash comes pouring into Australia and all that business investment creates new jobs and pushes up prices. That is certainly one way of looking at Australia: that its economic fortunes and corporate earnings are now fully correlated with Asia and that Asia is not America either. And to be fair, perhaps we have been taking too many hits lately from the crack pipe of despair. As a native-born American, maybe we over-consume on bleak American financial news and it clouds our objectivity on just what is really happening Australia. Maybe. Or maybe not.  Time, as they say, will tell. And in the meantime, regarding Australia, you might want to read this thought-provoking piece. It was the cover story from the recent edition of Business Week. You can see the picture that ran with the cover above. The story has a lot of food for thought, which is good, considering it's lunch time. Are minerals any good to a country if you don't sell them? Is Australia taking for granted that it will always have customers for its mineral resources and could bad tax laws drive away those customers? Profit margins on extractive industries are low compared to businesses further up the value-added chain, even taken higher commodity prices into account. How will the Australian economy develop industries that deliver more higher-wage jobs to more people? Of course from a geopolitical angle, this story goes well with the terrible movie we saw this weekend, "Tomorrow, When the War Began." It's about a group of Australian teenagers in a fictional coastal town that are out camping in the bush when the country is invaded by a coalition of people from the North, all of whom look suspiciously Chinese, but are never referred to as such. The movie is not really political. It shows that even in the middle of a foreign invasion, teenagers can still manage to be insecure and unsure and moody. And when their private dramas and romances are not playing out, their plotting a guerrilla insurrection against the foreign invader who's come to steal Australia's resources so they can more equitably shared, based on the needs of the Australia's neighbours. Hey. Maybe resources really DO belong to everyone. What's the saying? From each according to his ability to each according to his need. Of course needing something doesn't justify the taking of it, generally speaking. And for now, no one needs to take what Australia has when the country is perfectly happy to sell it. For now. Dan Denning
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| Eine Not So Kleine AUDJPY Nacht Movement Posted: 06 Sep 2010 03:57 PM PDT
The AUDJPY goes berserk jumping by 20 pips as the pair goes offerless on news that the BoJ has decided to keep its credit program and interest rates unchanged, not precisely the news the market was expecting but the knee jerk reaction in the wrong direction shows just how habituated the market now is to endless stimulation by CBs. The news was complete as expected, as GCI pointed out earlier: "Many traders believe the central bank - after bowing last week to intense political pressure - will keep its policy unchanged for several weeks. Volatile moves in the yen will likely be the single largest determinant of additional BoJ action. The central bank's ability to purchase additional Japanese government bonds is limited to rules that require the central bank to limit holdings in long-term bonds to the outstanding balance of banknotes in circulation. This means Japan's ability to purchase JGBs fell to less than ¥20 trillion." Elsewhere, Bob Katter just confirmed his support for an Australian coalition government, which would end an impasse and result in a minority government by Labor Prime Minister Julia Gillard. The news also comes in advance of the RBA decision, which is expected to be unchanged, as summarized by Goldman (below). In the meantime, after the initial surge in the AUD, the result is an immediate selloff in the AUDJPY pair, bringing the rate to unchanged, i.e. trading on mere noise.
From Goldman:
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| Jim Rickards Tells His Clients To Get Out Of Stocks And Discusses The Fed's Final "Golden" Bullet Posted: 06 Sep 2010 03:11 PM PDT
The increasingly more popular Jim Rickards once again takes center stage at King World News, this time focusing on the two ever-fascinating topics of market manipulation and hyperinflation. Kicking it off in fine form, Rickards notes that the "markets have ceased to function as they are intended - traditionally a place to exchange values, but more importantly to perform price discovery (people rely on markets to tell them what to do or to at least give them some guidance). What's happened is that all the markets have become so badly distorted that their price discovery function and therefore the information content around it no longer has any value." The primary culprit in this distortion is, of course, the Fed which is now and has been for over a year, openly (and not so openly when it comes to stocks) manipulating the broader market: "I always like to say if a private sector person does it, it's manipulation, but if the government does it it's policy. So they call it policy and they would say they had reasons for it, but in fact it was massively distorting." And on the oh so obvious extension from this argument to the "$1 trillion+ cash on corporate balance sheets" theory, Rickards says that this is "not healthy at all, that's a very negative sign because it means that people are afraid to allocate capital because they can not get good information from the markets. In effect the US and policy intervention from homebuyer tax credit, cash for clunkers, quantitative easing, mortgage purchases have in effect destroyed our markets, they no longer give us valuable information." Obviously, today's most recent battery of micro fiscal stimuli announced by the administration will merely make the market even more irrelevant as a price discovery and a capital allocation deterministic mechanism: and the more administrative meddling, the more money will sit on the sidelines, and the more retail investors will withdraw capital from risky assets. If you no longer invest in stocks, you are not alone: "I don't even take the stock market seriously" says Rickards, "and I mean that in all seriousness. Who's in the stock market right? You have indexers and robots. Is anybody else trading the stock market?" Obviously, that is a rhetorical question. Rickards continues by blasting the now prevalent, and well documented HFT feedback loops, that endow the market with a certain broken fractal quality: "the market has become self-referential, an algo playing itself out, almost the way you would run a self-recursive equation on a computer and you get very unpredictable results from very simple equations. It has degenerated into a joke. Everyone is looking around for the cause of the Flash Crash: what you find in complex systems is that the cause is almost irrelevant. What matters is that the autonomous agent, the participant, the elements of the system are prone to catastrophic collapse, so once you are in that mode, once you have that scale and that degree of complexity so that you are prone to collapse, the catalyst doesn't matter. If you have an avalanche who cares what snow flake started it, what you care about is the instability of the mountainside. The Flash Crash was the warning, I don't think the warning has not been taking very seriously. The markets are not reflecting fundamentals, because there are no more fundamental traders. It is an accident waiting to happen. I recommend to clients that they not be in stocks anymore. I don't take the market very seriously up or down because it has no informational content." In other words:
Luckily more and more see through the charade with every passing day. Rickards covers much more, including the Fed's empty bazooka and the only option left, the nuclear one, hyperinflation, as a function of money velocity exploding, and, of course, gold, on which topic he says the following:
And the arguably most interesting observation by Rickards, which follows logical from the prior statement:
As Kohn today said, it is all about expectations... Well, why not make people expect that the dollar they have today will be worth half as much tomorrow versus gold? Fascinating stuff, and one can be sure this is precisely what Alan Greenspan is whispering in the ear of his client John Paulson on a daily basis. Full interview can be heard here.
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| Graham Summers’ Weekly Market Forecast (line in the sand edition) Posted: 06 Sep 2010 02:04 PM PDT
Last week I forecast that stocks would either re-test 1,040 and breakdown or rally to 1,100. Stocks once again opted to accomplish both of my forecasts falling to test 1,040 on Tuesday before starting the mother of all ramp jobs Tuesday afternoon into Friday.
All in all, stocks rallied over 5% in the span of 72 hours. The move started off as the most obvious manipulation in history, with stocks exploding higher in the final 15 minutes of trading in August to insure that the Dow closed the month above 10,000, which appears to be the proverbial “line in the sand” that the PPT has drawn (more on this in a moment):
However, the ramp job continued into the overnight session, with stocks exploding, and I mean EXPLODING higher Wednesday on a flurry of headlines ranging from the political “Obama may replace Geithner with Michael Bloomberg,” to the economic “ISM manufacturing index came in better than expected, above 50, which signals economic growth” to the desperate, “Obama is planning yet MORE tax breaks and stimulus efforts.”
Regardless of the validity of any of these items, one thing has become clear: the Obama Administration and Democratic party are desperate not to get thrashed in the coming November election and they will be pulling out all the stops to try to garner votes.
This includes “holding the line” for stocks.
It’s now clear that 10,000 on the Dow and 1,050 on the S&P 500 are the proverbial “lines in the sand” at which the PPT will intervene in a big way. I’m only showing the S&P 500’s chart below:
This line has and will continue to be significant going into the November elections. Remember, the stock market is just about the only thing the Feds can point to as proof of a recovery, so they will be pulling out all the stops to keep stocks afloat.
The key issue is whether or not things will become so ugly that the PPT cannot “hold the line.” On that note, the S&P 500 has managed to clear 1,100, but just barely. It now has a cluster of overhead resistance between 1,110 and 1,126.
We’ve also got the 200-DMA at 1,115. This would be the most likely target for a reversal. However, we need to remember the vigor of the ramp jobs that have occurred this summer so far.
To wit, from its intraday low of 1,010 on July 1 to its intraday high of 1,099 on July 13, the S&P 500 rallied 8.8% without taking much of a breather. If this current rally were to follow the same pattern, we would see the S&P 500 at 1,131 before things cool down.
Personally I do not think this will be the case. But I wanted to at least acknowledge this scenario in case the “powers that be” are really hell-bent on forcing the market higher for political purposes (again the stock market is just about the only evidence of a “recovery” the Feds can claim).
My view is that we’re likely to see the S&P 500 butt up against the 200-DMA or possibly even trade above it briefly. However, this will prove short-lived. As the below chart shows, the 200-DMA has been put a lid on every rally since the April top.
With economic data worsening by the week and the European banking situation not improving , I think that a break of the 200-DMA on the S&P 500 will in fact serve as an excellent shorting opportunity with initial downside targets at 1,090.
Should things get ugly, then we’re likely heading to 1,060 in a hurry. And if, and yes it’s a relatively big IF right now, we take out 1,040 convincingly, then that will trigger the massive Head & Shoulders pattern on the S&P 500 which targets 880.
To summate, on the intermediate to long-term I am SUPER bearish. But this week we could see some additional upside before stocks roll over again in a meaningful way.
Good Investing!
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).
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| Close to Fair Value, But Still Unbalanced Posted: 06 Sep 2010 01:09 PM PDT A crucial time is approaching for the global economy and stock markets. The policy induced 'recovery' from the credit crisis is now petering out. While this inevitability was hardly consensus opinion months ago, most market participants are now coming around to the viewpoint that the developed world faces a low growth future. This is the reality currently being priced in to stock markets around the world. It's the reason why we have been content to be predominantly in precious metals and cash, although that will change if the market has another leg down. So next time you hear someone babbling about the market being cheap because we are trading below historical price earnings (PE) ratios, make a mental note to never listen to them again. It's either undergraduate analysis or they're just trying to sell you something…or probably both. If our future does hold below trend global economic growth, and there is a high probability that it does, markets will of course trade on lower PE ratios than they have historically (on average) done. This is one of the reasons why investing based on PE ratios makes no sense. It really tells you nothing about a company's intrinsic value. As we mentioned in last week's report, the market is now around or getting close to fair value. But that doesn't mean you should be diving in at this point. There are some pretty heavy undercurrents moving in the global economy and our feeling is they could come to the surface sooner rather than later. What are these undercurrents? In short, they are the global financial imbalances that continue to persist, despite the attempts of the credit crisis to correct those imbalances. Bernanke touched on these imbalances in his speech at the central bankers gab-fest at Jackson Hole last week. 'Managing fiscal deficits and debt is a daunting challenge for many countries, and imbalances in global trade and current accounts remain a persistent problem.' They remain a persistent problem because governments and central banks won't allow the imbalances to correct. Take Japan and Germany for example. At the risk of oversimplifying things, their whole post-war economic growth model is based on exports. More accurately, exports to the US. One of the fringe benefits of the US emerging victorious and financially intact after WWII was that the US dollar became the world's reserve currency. The vanquished nations of Japan and Germany built export industries that satisfied US consumer demand. This dynamic still exists today only now it's on a global scale. Japan and Germany are highly productive nations. They have learned to remain competitive despite persistently strong currencies. (Actually, it would be more accurate to say that they have learned to live with a constantly depreciating US dollar). Only a focus on productivity and use of technology has allowed their export industries to flourish. But both their economies are overly dependent on the export sector. Japan has just reacted to the recent strength of the yen (which is damaging the prospects of its big exporters) by announcing yet another stimulus package. Like all the others that Japan has announced over the past few decades, it will ultimately be useless. German second quarter GDP growth recently soared on the back of, you guessed it, rising demand for its exports. Germany was almost the sole beneficiary of the European debt crisis earlier this year because the euro plummeted, making its products more competitive in world markets. Unfortunately there are a whole bunch of imbalances in the eurozone itself. Germany and to a lesser extent France and northern Europe need a strong currency to discourage exports and encourage imports. In other words, domestic consumption needs to generate more growth at the expense of the export sector. Southern Europe needs a dramatically weaker currency so debt-burdened countries like Greece and Spain can try to trade out of their problems. And of course there is the export powerhouse of China, which manages its currency (by hoarding foreign exchange reserves) to retain export competitiveness. On the other side of these exporting nations is predominantly the US, which has a chronic trade deficit. (There are other trade deficit nations but to keep it simple we'll focus on the US). And the US trade deficit is simply massive. For the month of June 2010 the deficit was US$50bn (US$600bn annualised). But for all of 2009 the trade deficit was just $380.7bn, almost half the 2008 deficit of nearly US$700bn. From these numbers you can see what the credit crisis of 2008 and early 2009 was trying to achieve - a lowering of the chronic US trade deficit and by implication, a lowering of the demand for exports from Japan, Germany and China. It was simply the markets way of saying that the imbalances had become too extreme and that an adjustment was necessary. Our view is that because the markets are a reflection of the collective daily decisions of billions of people, over long periods of time they tend to reflect nature. That is, they move around a bit but the tendency is always towards balance. Over the past 40 years (since the world went off the gold standard in 1971) the global economy has been moving slowly but surely away from any semblance of balance. The point of maximum imbalance was reached in 2007/08 and the credit crisis ensued. The crisis wasn't some mysterious occurrence brought about by falling house prices in the US. It was nature's way of trying to brutally correct the 'dis-equilibrium' (as economists like to call it) that had built up over a very long period. Naturally, politicians and central bankers were not going to stand by and allow the correction to play out. Given the unprecedented nature of the stimulus applied, it was not surprising to see global economic growth rebound. But the stimulus is now wearing off, which is why you're seeing the prospects for the global economy soften materially. Which brings us back to the point made at the start of this essay. That is, we are now at a crucial time for the global economy and stock markets. Therefore, over the next few months you should not be surprised to see the market revert to its natural tendency to correct the imbalances that have built up over such a long period of time. We don't think this will involve a 2008 style meltdown. Stock prices are lower, and valuations are more attractive now than in 2008. But it does mean that we could be in for another leg down in stock markets around the world, including Australia. This is more of a hypothesis than a forecast. However it is worth standing back and considering where we have come since the credit crisis, and what has really changed since. Our conclusion is that the imbalances that the credit crisis set out to correct still exist. One way or another, this process will continue. It will either be a short and very deep correction (unlikely) or a prolonged adjustment over a period of years, the severity of which will be softened by central banks and governments. The latter is the most likely scenario. In this type of environment, you should expect the market's PE to contract. It's the natural response to a lower growth environment and increased risk aversion. It's called a bear market. Contrary to what you might hear in the media, bear markets are not all doom and gloom. If you recognise that we're in one, and set a strategy do deal with it, there is still money to be made. Consider these statistics from John Maudlin's most recent e-letter, where he discusses secular (long-term) bull and bear markets.
But, during those two decades, the market moves were far from calm. Annual returns from New Years' Eve to New Years' Eve ranged from -38% to +82%! The best-performing three years were +82%, +47%, and +42%. After each of those years I am sure the pundits proclaimed the death of the bear. Yet the three worst years were -38%, -33%, and -31%. As we'll see with most secular bear cycles, the period was as violent and choppy as the high seas in a monsoon. Across the 20 years in this bear cycle, 45% were positive-return years - but never more than two in a row! The 11 down years were generally singles or pairs, with only one three-year stretch at the start of the cycle. Although the average gain was +30% and the average loss was 17%, the change from beginning to end was a paltry +2% in total. The message, then, is relatively straightforward. In bear markets, positive returns are nearly just as likely as negative returns. To do well, though, you need to invest like you're in a bear market. This means you should:
This is the basic strategy we'll be employing for the next few years at least (unless Bernanke goes nuclear with the printing press). Making money in the markets is all about probabilities. The probability of success increases markedly once you recognise the environment you're in. So if you understand that we're in a bear market, you're well ahead of the majority of investors. Greg Canavan
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| Quantifying The Top 10 China Risks Posted: 06 Sep 2010 01:09 PM PDT
Morgan Stanley's Qing Wang has created a new tracking concept, the China Macro Risk Radar (CMRR), whose sole goal is to provide a framework to asses and monitor risk events of low to moderate probability (high probability events already have their own standing at the firm and are singled out in client calls) and high impact. As part of its inaugural edition, MS has assigned 10 risk events to four different categories on the CMRR - each risk event is assessed according to six aspects, including its description, content, potential impact, likelihood, timeframe, and evolving direction. We present the top 10 items that are of concern to investors in China, and are likely to provide even more ammunition to the ever increasing roster of China bears. The events can be summarized along the following four verticals: Risk Category A: Macroeconomic
Risk Category B: Policy and Regulatory Changes
Risk Category C: Financial Market Shocks
Risk Category D: External Shocks
Visually, this is summarized as follows:
Here is the drill down by specific category, starting with what what arguably has the most impact on the future of China: the possibility of the complete blow up of China's banking system via a surge in NPLs.
Next in terms of impact - the rolling defaults of local governments:
Last, and probably least impactful in the macro economic category, is the possibility of a macroeconomic hard landing:
In the "policy and regulatory change" category, the biggest risk is the already visible in various region development of a a rapid wage increase.
Next up, the topic that makes daily headlines in the news, and has a both upward and downward impact on the CSI (depending on how some butterfly flaps its wings any given morning), is the Introduction of a property tax
Resource tax reform, while more likely, will probably have less of an impact.
And now for the one all have been waiting for -the property price bubble bursting. While Morgan Stanley assigns only a 20% probability to this event, we believe it is much higher. We also disagree that its impact on the financial markets would be merely moderate: one can argue that the depression currently ravaging the US is predicated by the US property bubble burst. One can see why the property bubble popping halfway around the world in an economy which is basically a mirror image of the US monetary policy would have just as dire an impact (and would perpetually destroy the concept of decoupling, this putting Jim O'Neill out of a job forever).
The possibility of a commodity price spike, while less remote, will also probably have a smaller impact on financial markets, although hardly as little as MS makes it seem.
As for the two key external shocks that are facing China, the main one, and which we believe has by far the highest likelihood, far higher than the traditionally optimistic Morgan Stanley dares to assign, is the reflaring of the European Sovereign debt crisis, which is only a matter of time.
And last is the one thing that can easily end Chuck Schumer's career, whose push to have China revalue the CNY has led to nothing but disappointment, as the US imports in the last month surged to a multi year high. So much for the whole export-led recovery. What happens next is only up to the idiots in D.C., and the probability of an all out trade war is getting ever bigger.
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| What Bernanke Doesn't Understand Posted: 06 Sep 2010 11:44 AM PDT The reason the US economy is not recovering from this crisis is because all sectors of American society took on too much debt during the false boom of the last two decades, and they are now busily getting themselves out of debt ... Read More...
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| Posted: 06 Sep 2010 11:34 AM PDT
Economists are not known for their fighting words. They tend to be of the meek, "world inheriting", broken clock correct twice a day, variety, so any time one of their kind goes off the territory becomes a notable event. This is precisely what Jan Hatzius did today, when he basically blasted the Fed in its completely wrong read of the economic data, which incidentally happens to be inline with what Zero Hedge has been claiming, that accounting for non-recurring, one time items, means that the entire "firm period" of late 2009 and early 2010 has been nothing than a Keynesian mirage. Hatzius says: "Later this year or early next, however, we do expect a return to unconventional monetary easing. This is because we strongly disagree with the notion that the recent slowdown in activity is a temporary “soft patch” in an otherwise fairly decent recovery, which seems to underlie the Fed’s forecast of a reacceleration in 2011 after a modestly slower period in 2010H2. On the contrary, we believe that the stronger growth of late 2009/early 2010 was a temporary “firm patch” in an otherwise extremely anemic recovery, and there is a sizable (25%-30%) risk of a renewed recession." We wonder - isn't that the whole premise behind the Keynesian cheap credit, wonder years? Does it not mean that the entire economic and market surge from 1980 onward is about to be renormalized to a fair value which is about 75% lower? There is a reason why people far smarter than us have a target of 450for the S&P... Here is why Hatzius is certain that one week (of artificially sugary data) does not a recovery make, and that QE is coming now, stronger than ever.
In other words, the 10 Year may soon be at [2%|3.5%] with equal probability... Goldman's top economist said so. .
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| Gold and Silver's Daily Review Posted: 06 Sep 2010 09:08 AM PDT Labor Day and the first Monday in September. Tomorrow, the busy time of the year get underway in the markets as the holidays are over and the stark realities of making a living hit us all.
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| Gold at $1250, Silver Nears $20/Oz, as Obama's $150bn Labor Day Promise Called "Austere" by Krugman Posted: 06 Sep 2010 09:03 AM PDT THE PRICE OF GOLD rose back above $1250 an ounce for Dollar investors on Monday in what dealers called "quiet" Asian and early London trade, while European stock markets also ticked higher together with government bonds.
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| Vladimir Putin to step into $450m Kazakh gold feud Posted: 06 Sep 2010 08:50 AM PDT Russia's Prime Minister Vladimir Putin is today expected to intervene in a $450m (£292m) corporate battle over prize Kazakh gold fields.
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| Will Unemployment Continue to Climb? Posted: 06 Sep 2010 07:52 AM PDT
From The Daily Capitalist Last Friday the latest employment numbers came out and revealed that private employment was up by 67,000 jobs, but overall unemployment was up, to 9.6% from 9.5%, because of government worker layoffs (mainly Census workers). This means that 14.9 million people are unemployed (under the narrower U-3 definition). The broadest measure of unemployment, the U-6 measure which includes "marginally attached" workers, such as those that haven't looked for a job in the last four weeks, or that have given up looking but want jobs, or temp workers who would like full-time jobs, went up to 16.7% from 16.5% on a seasonally adjusted basis that number (on an unadjusted basis, it was down to 16.4% from 16.8%). Does this signal a turnaround in the employment situation? I don't think so. Here are the official trends:
All charts from the Wall Street Journal It is easy to see from this chart above that employment gains have flattened since January, 2010. Here is another statistic to look at for the week of August 28:
While the above jobless claims numbers are a bit of a mixed bag, the trend shows clearly in the chart. For the last two weeks of claims declined slightly, but the dark red line shows the 4-week moving average which shows rising claims. Other indices such as the Monster Employment Index, a monthly analysis of U.S. online job demand, declined to 136 from 138. The Challenger mass layoff August report declined to 34,768 from 42,676. Then the ADP employment index for August declined to a negative 10,000:
"The ADP national employment report is computed from a subset of ADP records that in the last six months of 2008, represented approximately 400,000 U.S. business clients and approximately 24 million U.S. employees working in all private industrial sectors." So where is unemployment going? I'll let others analyze the faults of the BLS's methodology and certain apparent inconsistencies. Dave Rosenberg gives a good report today on that, and Mish, as usual thinks the BLS data are phony because of the "Black Box" birth-death business formations model. Mish is no doubt correct. There are several important trends I believe are and will drive employment and I mentioned them last Thursday in my post on weakening manufacturing data, and especially rising inventories. This trend will lead to higher unemployment and Friday's BLS numbers bear this out as manufacturing shed jobs. According to the report:
The largest gains were shown in health care (+28,000), construction (+19,000), and professional temp workers (+17,000). These gains are not indicative of healthy private employment growth in my opinion. Health care is now being driven by Obamacare and Medicare, construction is driven by Recovery Act spending since new private development has fallen off a cliff, and temp workers show that businesses are still reluctant to hire. My report Thursday ("Important Manufacturing Indicators Look Weak") reported on weakness in new manufacturing orders, rising inventories, and weak consumption data. David Stockman reported Friday on "private incomes" for June which were actually negative, which belies the optimistic report on private wages and salaries being up by 0.4%. Also Friday the ISM came out with their Non-manufacturing Index, and the report was grim:
You can also see from the above chart, that this index has been flat to declining since March, 2010. The report on durable goods orders report for July also was weak:
Just a few more bits. The Philadelphia Fed reported that its regional manufacturing index fell to -7.7 in August compared with 5.1 in July. Philadelphia reported that new orders rose in August, at an index of 55.0, but was way down from July's 64.6 for the slowest reading of the year. They also reported inventory backlogs jumped to 56.2, a negative factor. Lastly, there is consumer sentiment:
These factors will continue to depress employment and indicate weak economic growth.
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| Posted: 06 Sep 2010 06:44 AM PDT
Today, the ECB announced one sole bank was allotted $60 million USD via its Fed-swap facilitated liquidity providing operation. At a comparable operation last week, the ECB announced that just one, almost certainly the same bank, had requested $40 million in dollar-denominated funding from the ECB. What is troubling is not that just one bank requested such a paltry sum of capital to last it for another 168 hours, but that precisely one bank did, indicating that the funding situation is so bad in Europe that a bank is unable to find a token $40 million in the interbank market and via traditional means, that it is forced to beg to the institution of last reserve, the ECB. Furthermore, the fixed-rate on the operation came in at 1.19% (an increase from the prior week). This is nearly 4 times the rate allegedly charged for 3 Month LIBOR, which today came in at around 0.30%. Oddly enough it is just today that the WSJ comes out with an article fanfaring the cheapness of interbank lending with "Libor Falls as Banks Sit on Cash." Judging by today's ECB action, the WSJ's article would be a little more relevant if European banks had at least some access to this abundantly cheap capital, which it appears is available to everyone except those who need it.
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| Not a Good Year to Have a Labor Day Posted: 06 Sep 2010 06:02 AM PDT There's been lots of talk about the labor market this Labor Day. Unfortunately, it doesn't seem as though the eight million jobs that were lost over the last few years are coming back and, aside from the burgeoning health care industry, new sources of job growth are few and far between. Maybe unlimited money printing as suggested by outgoing Fed Vice Chairman Donald Kohn (see this Reuters report for details) will do the trick.
From the Jeff Parker archive at Florida Today.
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| Goldman: "One Could Make The Case That GDP Growth Looks Weaker Than It Did A Week Ago" Posted: 06 Sep 2010 04:57 AM PDT
Last week's economic data was hailed by all the optimists as definitive evidence the a double dip would be easily avoided. Long forgotten hopes about actual growth (it has been about 10 months since someone uttered CNBC's 2009 trademark phrase "green shoots"), the Kool Aid set has now started extolling the virtues of not falling into an outright depressionary freefall. As such, very soon the lack of images of lines in front of soup kitchens will be enough to push the Dow up by 1,000 points intraday. Additionally, the lack of a nuclear holocaust is worth at least 10% on the S&P (and has been priced in about 90% so far). And as usual, the government propaganda machine presented the data in a way in which the robotic headline scanners would immediately go nuts in another daily pumpatahon. We already presented Rosenberg's take from last week showing why the data was certainly not to be trusted in the first place. And just to reaffirm the case that not all is well, here is Goldman's Ed McKelvey demonstrating the ridiculousness of presenting last week's data as a rout for the bulls, when all it really did was beat already rock-bottom expectations, and in addition set the seeds for an even weaker Q3 GDP print.
So where were the key data weakness in the past week according to Goldman? The first place- the collapsing gap between the New Orders and Inventories diffusion components, and the corresponding surging gap with the ISM Mfg index. As McKelvey says, this is an "important lead indicator of movements in the composite index and in industrial production."
Ah, good ole' inventory accumulation. Nothing like using Chinese tricks to misrepresent GDP in the USSA. Next up: debunking the "surprising" beat of the pending home sales.
Then again, we are confident Yahoo Finance and CNBC had a slightly different look at the data. Second to last, is last week's terrific NFP data. Or not.
And oddlly enough, the most important data piece from an accounting standpoint for the Q3 GDP, was the little noticed Construction Spending. As Goldman points out, this report, which came in below expectations, and whose prior revisions were "dismal" can wreak serious havoc on the already weak Q3 GDP numbers, which most are already anticipating to be around 1-1.5%.
So when all is said and done, was the 5% jump in stocks, and the entire July retrace, justified? Of course, not. But when people's, and more importantly robots' attention spans, jump from number to number like a lemming on speed, that is precisely the expected result... At least until such time as Obama's resumption of daily Rooseveltian New Deal tactics confirms so very glaringly that the depression never left.
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| Posted: 06 Sep 2010 04:24 AM PDT Don't bother to write and tell us how well gold performed during the Great Recession. Gold was officially money back then. The US government increased the value of gold – by decree – in order to reduce the value of the paper currency.
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| Bernanke, Bubble Denier: The Greatest Fed Tool of All Posted: 06 Sep 2010 04:07 AM PDT
Last week, the assorted regulatory freaks have been patting themselves on the back in front of your appointed financial elite, better known as the Financial Crisis Inquiry Commission. Our intrepid printer-in-chief himself made the rounds yesterday morning in the second appearance of his Whip Deflation Now TM tour. A translation of his first appearance has been kindly provided by Gary North (part 1, part 2). We focus on Bernanke's remarks regarding monetary policy, wherein he dodges all responsibility for the Fed creating, then failing to identify, the housing bubble. Naturally, he concludes with allusions that the unprecedented interventionist structure being built will once and for all do away with that pesky business cycle. Before we give away too much, we'll let him dig his own grave.
Note: when your head is lodged within the box's colon, it's going to be a bit difficult to think outside of it and beyond your equation-scribbling peers--but yes, chalk it off to psychology and be done with it.
Well, everything's relative, isn't it:  Not that there weren't unique factors within the UK that facilitated a bubble relating to housing in particular, but it takes massive doses only of the world's reserve currency to achieve what Jeremey Grantham called in 2008 (as recently quoted by Paul Farrell), "The First Truly Global Bubble:"
Congratulations, Fed--you own it all. With respect to the UK, it was especially vulnerable as it was a substantial profit reaper of US securitization efforts. Just what were those London bankers doing with their fees? Buying homes maybe?
While it's true that politicians lusting after votes created a legal framework over decades that allowed for the relaxation of lending standards to criminally low levels, and it's true that securitization efficiencies facilitated the rapid creation and transfer of credit, another truth is that rocket ships don't leave the ground without fuel. And, the fractional reserve rocket ship required the Maestro and his apprentice to conjure the digital zeros that would be sent out to be fruitful and multiply, thus doing Goldman's work. To be sure, this ship went parabolic in the 80's, but it was that final dose of nitrous in 2003-2004 that kicked off the asset backed securities binge, where everything from student loans to second mortgages to bookie receipts were sliced, diced, rated and sold as quickly as everyone's faith in perpetual asset price inflation would allow.  Source: Robert Prechter Bernanke continues:
Though, debunked prior, if there are any more doubts:  Bernanke continues:
First, even before "2003 or so"--at the September 24, 2002 FOMC meeting to be exact--there was already discussion of the emerging "bubble" in housing, with the term used several times, including this curious exchange amongst the Committee recorded in the transcript (yes, the very type of transcripts that were once denied by Greenspan to exist):
At the same meeting, Federal Reserve Bank of Atlanta president, Jack Guynn, said:
The FOMC would go on to lower rates twice more, eventually to 1%, then keep them there for a year. Later, at the June 29-30, 2004 meeting, Mr. Guynn would say:
Accordingly, the connection between monetary policy and foreign investment, discussed previously, was expressed by at least one member of the FOMC. But, back to Bernanke, now:
Here we see the central banker's innate twin fears of the falsely perceived "liquidity trap" and the CB's mortal enemy: deflation. For the record, Ben, the recovery was "viewed as jobless" precisely because the Fed serially over-accommodated through printing, and never let the bust part of the business cycle assume its proper role of adjusting for prior artificial accommodation. That is, Fed money printing so grossly exaggerated capital structures that securitization itself became an end, with the production of collateral secondary. (Indeed, toward the end, even collateral became unnecessary with such financial innovations as CDO squared).
Replace "reduce" with "induce", and one wonders what good purpose at all the Fed serves:
Bernanke concludes:
In other words, the Fr-oddulently created Financial Stability Oversight Council and the Office of Financial Research will now paper over insolvency on an institution by institution basis, while the Fed will retain macro control over papering over system-wide insolvency. While economists can call for the targeting of this-or-that inflation rate or this-or-that interest rate--credit aggregates, monetary aggregates, employment rates, etc.--the fact is, until business owners, especially small business owners, are unshackled from the institutionalized competitive advantages bestowed by the government upon their less efficient and better-connected rivals, prosperity for all will continue to decline. We could, as some suggest, force banks to lend by imposing a penalty on the $1 trillion in excess reserves held by banks at the Federal Reserve (as opposed to paying them 0.25% interest on such), which by the way, would lower interest rates further, not raise them--no matter how hard you wish. Just how much of this money would chase loans versus how much would be redirected into other investments is unknown. With the new myriad statutes, we're probably just a few short steps away from regulators forcing banks to make loans en masse to privileged groups that own small businesses. However, didn't we try this already with sub-prime? Sending unlimited good money after bad, cloaked in the "security" and moral hazard of government guarantees is what got us here. We don't need to "get money in the hands of consumers" or "make banks loan to small businesses", or advocate anymore madcap schemes for the Fed to implement. We need to let businesses figure out for themselves how to satisfy consumer demands on a fair playing field, and let consumers decide when they want to consume versus save. This does not require the gentle coaxing of the central planners. It precludes it.
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| “Obvious” US Bonds Junk… Considering Key Ratios, Future Outlook Posted: 06 Sep 2010 04:00 AM PDT It's the burning question that can't be denied — do US bonds make sense with the current triple-A rating and low yield? Or, is "quite obvious" they instead deserve a junk rating? Of course, China-based Dagong Credit Rating Agency has already argued vehemently the US should have a lower rating, in particular lower than China. A recent contribution from Daryl G. Jones, managing director of investment research firm Hedgeye, offers another indication the lower-rating perspective is gaining traction here in the US. From Fortune: "But while investors are willing to accept little in the way of return to own U.S. government debt and the U.S. has retained its AAA credit rating, the metrics by which we use to evaluate the balance sheet of the United States continue to deteriorate. "Typically, a bond receives junk status due to its increased risk of default, and therefore pays higher yields to the owners of the bonds to make up for the risk. In general, the owner of a bond is subject to many risks: interest rate risk, inflationary risks, currency risk, duration risk, and so forth. In this instance, as it relates to the United States, we are actually most concerned with the risk related to future repayment. Specifically, with projected deficits for at least the next fifty years, will the United States be able to repay its debt and, if so, on what terms?" Jones specifically also adds a breakdown of the key ratios that directly compare Greece and the United States: "Deficit as % of GDP "Debt as % of GDP "Debt as % of revenue "Sources: Hedgeye, Morgan Stanley and CBO. 2009" The ratios suggest, and Jones agrees, that the US would benefit from the same kind of austerity measures Greece is currently imposing. This is because even under the government's own existing Congressional Budget Office projections debt is only going to continue to increase as a percentage of GDP. As he describes: "…And the outlook of the United States is distressed to say the least. The Congressional Budget Office projects the U.S. budget out until 2035 under two scenarios. In both scenarios, the U.S. government will run a deficit through the projection period and require increased debt to fund the deficit. In the more aggressive scenario, in terms of larger deficits, debt as percentage of GDP nears 200% by the end of the projection period. Hedgeye actually believes that even the more aggressive scenario could understate future deficits." This view — perfectly at home here in The Daily Reckoning — becomes more prevailing as it appears in the likes of Fortune. It also offers further evidence that, even if the US won't be plummeting to junk status tomorrow, it's still creeping toward, as a first step, losing its triple-A status. Dagong would be quick to lend emphasis to the chorus, if it ever manages NRSRO status. You can more details in Fortune's coverage of whether US government debt should be rated junk? Best, Rocky Vega, "Obvious" US Bonds Junk… Considering Key Ratios, Future Outlook originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."
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| LGMR: Gold at $1250, Silver Nears $20/Oz, Obama's $150bn Labor Day Promise "Austere" Posted: 06 Sep 2010 03:44 AM PDT London Gold Market Report from Adrian Ash BullionVault 08:20 ET, Mon 6 Sept Gold at $1250, Silver Nears $20/Oz, as Obama's $150bn Labor Day Promise Called "Austere" by Krugman THE PRICE OF GOLD rose back above $1250 an ounce for Dollar investors on Monday in what dealers called "quiet" Asian and early London trade, while European stock markets also ticked higher together with government bonds. Silver prices came within one cent of $20 per ounce, extending last week's 30-month highs. "Gold is sitting in a very tight range," says Andrey Kryuchenkov at VTB Capital in London, speaking to Reuters. "The downside will be limited because of seasonality, with Asian buyers really looking to buy on any dips." "My order book is filling-up, and I expect more to come as the Rupee has appreciated," a state-bank gold dealer in Mumbai told the Economic Times this morning. "I have plenty of orders below $1240," said another. Hong Kong dealers today reported "physic...
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