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- Cycle Charts for the Dow, Gold and Oil Most Revealing!
- Top currrency hedge fund: Euro crash could resume TOMORROW
- Why oil may never be cheap again
- Brilliant fund manager Einhorn: Gold is going much higher
- All About the Benjamins
- November: Gold Gains 6%, While Silver Soars 20%
- Is J.P. Morgan Getting Squeezed In Silver Market?
- Gold and Silvers Daily Review for December 6th, 2010
- Fallen Giant: The Amazing Story of Hank Greenberg and AIG
- 'Big Picture' Investing: The Only Way to Go
- Employment Going Nowhere in a Hurry
- Why I Bought Silver...And Why I Won't Sell
- J.P. Morgan Getting Squeezed In Silver Market?
- Docudrama; Crash JPM
- $30!!!!
- USDs Local Top, Gold and Silvers Bullish Outlook
- Rampant silver spike may hit $50 an ounce in the New Year
- The Con of the Century
- Paul Brodsky: Dollar will be devalued against gold at $8,000
- With Stocks Ready To Dump This Fiction Was Expected
- Two Opposing Views Today On Gold
- Gold Market Update
- Silver Market Update
- New 30+year high for silver overnight
- The Silver Shortage Pre-Panic Line
- Ben Davies - Massive Short Squeeze at Hand in Gold Market
- Brodsky on Gold
- Blinded By The Lust
- Thinking the Unthinkable
- The Pros and Cons of Investing in India
- J.P. Morgan vs. Silver: so Far – go Gold
- Silver Closing in on $30/oz.
- Job Hunting
- Got Gold Report – Gold, Silver Sizzling
- The Perils of the Bond Market
| Cycle Charts for the Dow, Gold and Oil Most Revealing! Posted: 06 Dec 2010 07:12 AM PST Larry Edelson's proprietary cycle analyses suggests that we could experience declines in the Dow 30 and S&P 500 to 9,000 and 1,000, respectively, by April of 2011; a potential decline in the price of gold to as low as $1126 by August of 2011 and a decline in the price of crude oil to as low as $69 next year - before taking off to record highs. Words: 781 |
| Top currrency hedge fund: Euro crash could resume TOMORROW Posted: 06 Dec 2010 07:11 AM PST From Zero Hedge: John Taylor appeared earlier on the 2011 Reuters Investment Outlook Summit, and among various interesting things (namely another call for EUR-USD parity, and that he would "love to be owning gold right here"), he said that the U.S. is imminently headed for another recession, a development that will boost the USD and weigh on commodities. Yet what is more interesting is that in his latest "Chairman's View", Taylor put down a specific date for the end of the recent recovery in European currencies: the date is tomorrow, the day of the Irish Budget decision, and also the day when Europe may see a coordinated effort for a bank run. Taylor also notes that... Read full article... More on the euro crisis: Top currency hedge fund: Nothing can stop the euro crash Forget Greece and Ireland, this is the only country that matters This simple chart shows why the euro bailout is guaranteed to fail |
| Why oil may never be cheap again Posted: 06 Dec 2010 06:46 AM PST From Frank Holmes of U.S. Global Investors: Lost in the shuffle of the European debt woes, a second round of quantitative easing and gold's record run has been the resurgence in global demand for oil. Global oil demand is strong; in fact, it has never been stronger. Oil demand during the third quarter of this year was up 3.7%, the fourth-straight quarter of growth. Who's behind this increase in demand? Emerging markets. You can see from the chart that global oil consumption has bounced well off early 2009 lows and now... Read full article... More on oil: Rick Rule: Oil supply outlook "positively scary" Professional bets on $100 oil are skyrocketing World's biggest supertanker operator is seeing a huge rebound in Chinese oil demand |
| Brilliant fund manager Einhorn: Gold is going much higher Posted: 06 Dec 2010 06:37 AM PST From Newsmax: Greenlight Capital head David Einhorn says gold is going higher, interest rates are way too low, and the U.S. government has no intention of paying its bills. "We're going to continue to own gold as long as we think the monetary and fiscal policies don't make sense," Einhorn, who expects the price of gold will continue to rise, told CNBC. "Zero (interest) rates are a very dangerous long-term policy." "Individuals would benefit, particularly pensioners, from having some income," says Einhorn. "There are people who save money but can't speculate in the stock market, and they're getting nothing. If we raised the rates a bit…" Read full article… More on gold: Gold analyst: "It's no longer safe to hold cash" The real reason China is buying so much gold If you think gold is rising just because the dollar is falling, you're way off |
| Posted: 06 Dec 2010 06:10 AM PST
Mercenary Links Roundup for Monday, Dec 6th (below the jump).
12-06 Monday
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| November: Gold Gains 6%, While Silver Soars 20% Posted: 06 Dec 2010 05:58 AM PST Marco G. submits: November, 2010 was a time of ups and downs and to make sense of it all the author did some calculations and took a look at some charts. Following are the charts with some commentary. I took the date of Wednesday November 3rd, 2010 as the baseline since that was the day the FOMC made their announcement of further treasury support.
Complete Story » |
| Is J.P. Morgan Getting Squeezed In Silver Market? Posted: 06 Dec 2010 05:57 AM PST Benzinga submits: By Scott Rubin Complete Story » |
| Gold and Silvers Daily Review for December 6th, 2010 Posted: 06 Dec 2010 05:56 AM PST Gold Forecaster |
| Fallen Giant: The Amazing Story of Hank Greenberg and AIG Posted: 06 Dec 2010 05:54 AM PST Clark Troy submits: Along with Goldman Sachs, AIG (AIG) was 2009's favorite whipping boy. AIG Financial Products exposed the global financial system as a whole to risks of which AIG corporate seemed blithely unaware until it was much too late to do anything about them. The scandal around bonus payments to AIG FP staff exposed deep and volatile fault lines around general attitudes towards compensation on Wall Street, and investigations into the AIG bailout and the fact that AIG FP's counterparties -- especially Goldman Sachs -- got paid out 100 cents on the dollar, poured more flames on the fire of populist ire. Complete Story » |
| 'Big Picture' Investing: The Only Way to Go Posted: 06 Dec 2010 05:50 AM PST Wanna know how to make a small fortune in the stock market? Start with a large fortune and buy stocks based on your emotions. Wickedly funny. Disastrously true. Letting your emotions determine the timing of stock purchases means buying when everyone around you is buying – that’s why you feel so certain – and ensures you will enter near an interim top. We prefer a “BP” (Big Picture) approach to buying. As an example, at the height of the recent Gulf oil disaster, wild speculation of British Petroleum’s (BP) ultimate demise drove the stock price down in a wave of panicked selling. To use a classic Doug Casey idiom: there was blood in the streets on this stock. That is the time to buy, and those who kept the big picture in mind have profited nicely. Complete Story » |
| Employment Going Nowhere in a Hurry Posted: 06 Dec 2010 05:41 AM PST  Prieur du Plessis submits: On Friday the U.S. Labor Department reported that nonfarm payrolls (jobs) increased by 39,000 in November. In order to put the latest data in perspective, Chart of the Day provided a comparison of nonfarm payrolls following the end of the latest economic recession (i.e. the Great Recession – solid red line) with the prior recession (i.e. 2001 recession – dotted gold line) and the average post-recession from 1954–2000 (dotted blue line). As shown, “the current jobs recovery is much weaker than the average jobs recovery that follows the end of a recession” and is also “following a path that is similar although slightly stronger than what occurred following the recession of 2001”. “Another important point is that over the past 11 months (i.e. since the beginning of 2010) the trend in jobs is up – slightly,” said Chart of the Day. Complete Story » |
| Why I Bought Silver...And Why I Won't Sell Posted: 06 Dec 2010 04:06 AM PST In January 2002 I bought my first few ounces of physical silver at less than $5 per ounce. The reason I bought silver was that the Commercial Short position in the COMEX Commitment of Traders Report was, in my opinion, way too high considering that the US Government had just announced that they had sold their entire 3 Billion ounce silver position over the last 50 years and would now have to buy silver to support their Silver American Eagle program. Here is the CFTC Silver Commercial Short Position that I based my analysis on: |
| J.P. Morgan Getting Squeezed In Silver Market? Posted: 06 Dec 2010 03:56 AM PST SFGate |
| Posted: 06 Dec 2010 03:43 AM PST |
| Posted: 06 Dec 2010 02:28 AM PST Bring on the rockets!!! :banana::banana::banana:  |
| USDs Local Top, Gold and Silvers Bullish Outlook Posted: 06 Dec 2010 01:00 AM PST |
| Rampant silver spike may hit $50 an ounce in the New Year Posted: 06 Dec 2010 12:24 AM PST Gold and silver prices have moved to new highs for the current bull market with gold hitting a fresh all-time high at the moment of writing above $1,415. Silver is within a whisker of $30. |
| Posted: 05 Dec 2010 11:46 PM PST In an article entitled "The con of the century – Federal Reserve made $9 trillion in short-term loans to only 18 financial institutions. Since 2000 the US dollar has fallen by 33 percent. The hidden [...] |
| Paul Brodsky: Dollar will be devalued against gold at $8,000 Posted: 05 Dec 2010 11:00 PM PST GATA |
| With Stocks Ready To Dump This Fiction Was Expected Posted: 05 Dec 2010 08:16 PM PST "U.S. Jobless Claims Decline to 407,000, Lowest Since July, 2008." If these numbers were accurate, which they are not, it would mean most have just given up trying for a job and that normal layoffs have been deliberately held-back until after January 1. This often happens as companies do not want to spoil and sadden family holidays. "Applications for unemployment benefits in the U.S. fell more than forecast last week to the lowest level since July 2008, reinforcing evidence the labor market is healing. Jobless claims declined by -34,000 to 407,000 in the week ended November 20, Labor Department figures showed today in Washington. The median projection of economists surveyed by Bloomberg News called for a drop to 435,000. The total number of people receiving unemployment insurance decreased to the lowest in two years, and those on extended payments also fell." "Fewer firings lay the groundwork for a pickup in job creation that will generate incomes and spur consumer spending, which accounts for 70% of the economy. Even with companies firing fewer workers, unemployment will be slow to decline, according to the Federal Reserve's latest forecast in which policy makers also lowered their growth projections. The labor market is clearly improving," said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. We're seeing consistent job gains in the private sector. This suggests we'll have a good holiday spending season. Consumer spending rose in October for a fifth month as a rebound in incomes lifted the biggest part of the U.S. economy at the start of the final quarter of 2010, Commerce Department figures showed today." -Shobhana Chandra 11-24-10 These Silly And Nonsensical Utterances Are Common In Early Depression Stages. We could not disagree more strongly with Mr. Silva and his NYC and Washington D.C. compatriots who must continue to pump Pollyana nonsense to the herd. Here is the real story: (1) USA unemployed now is over 23% nationally. (2) Within 18 months it will be 35% nationally. (3) The ugly food stamp story… we have already addressed in this section of our letter. (4) Europe is on the verge of a complete systemic collapse. (5) China's inflation is going off the charts and the Hong Kong Real estate market bubble will burst taking down their stock market. (6) USA retail holiday sales will be a massive failure. Watch for at least one major department store chain to go BK in the first quarter of 2011. (7) Chrysler and GM will crash and burn. Ford will be wounded but left in business. (8) This is not a recession but is Greater Depression II that shall go on for a decade. (9) Over one million Americans lose unemployment benefits within days as their cycles terminate. Within 3-5 years World War III begins over economic failures, trade wars, protectionism, food shortages, and misguided central bank policies. The happy-go-lucky talky-talky as from Mr. Silva was common in 1929 and in the early 1930's as observers and analysts could not tell the truth or did not understand it based upon reality and fundamentals.         This posting includes an audio/video/photo media file: Download Now |
| Two Opposing Views Today On Gold Posted: 05 Dec 2010 05:30 PM PST GoldChat |
| Posted: 05 Dec 2010 04:35 PM PST Clive Maund |
| Posted: 05 Dec 2010 04:33 PM PST |
| New 30+year high for silver overnight Posted: 05 Dec 2010 03:46 PM PST Thank you to our friends the Australians and Asians doing the buying Monday morning.:bowdown: Breakout above the Nov 9 high. C'mon $30! |
| The Silver Shortage Pre-Panic Line Posted: 05 Dec 2010 03:00 PM PST
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| Ben Davies - Massive Short Squeeze at Hand in Gold Market Posted: 05 Dec 2010 03:00 PM PST King World News |
| Posted: 05 Dec 2010 12:33 PM PST Never saw this posted here. I thought it was very good. Paul Brodsky's comments delivered to: The BCA Fall Investment Conference The Plaza Grand Ballroom, New York October 25, 2010 Frame 1: Thank you, David (Abramson). I'm honored and delighted to be here. I'm going to take what many in this room may see as a radical point of view — that our almost 40 year-old global monetary system has already been irreparably harmed, and that it's well on its way to being replaced. For those that saw Barry Ritholtz this morning, I assure you I'm not just back from Roswell searching for UFOs. I don't think the world will end after the current monetary system does. We won't wake up one morning to find our property has been taken away, at least not in nominal terms. But I do think there will be a major transfer of wealth – manifest through unimaginable inflation — and that investors that begin to view asset values in real, inflation-adjusted terms today will benefit at the great expense of those that don't. My argument is grounded in history and macroeconomic fundamentals that my partner Lee Quaintance and I find very compelling. For the record, prior to opening a macro fund we spent twenty-odd years apiece as bond traders, running government and credit trading desks for one of the world's largest banks and on the buy-side running fixed income investment funds. We went off the ranch only when we began to follow the money, or to be more precise, when we began to define and count it. Frame 2: This graph shows how the US economy levered itself through what we term "unreserved credit". The green line is the growth in M3 and the blue line is output growth. As you know M3 was the only monetary aggregate that included overnight repurchase agreements Wall Street banks use to finance their balance sheets. We can see that from '94 through March 2006, (when the Fed stopped reporting it), M3 grew almost 12% annually. The point here is that Wall Street consistently tapped into an ever-increasing supply of overnight credit and then helped distribute term-funded debt throughout the system. From this systemic debt mismatch the entire global economy ultimately became dependent on the US Fed. At first this term credit flowed broadly into financial asset markets. When equity markets blew up in 2000, it flowed into housing. When that credit finally blew in 2007 there was nowhere for it to go except back to the Fed. This is what we're seeing today. So while it may seem that great wealth was created from '94 to 2006, we would argue the majority of it was not wealth at all. It wasn't capital either. It wasn't even money in the real sense. Ultimately it was overnight, unreserved credit. Frame 3: Let's take a look at how far over our skis we currently are. The top row in this table shows the US Monetary Base, which is basically all outstanding currency and electronic bank reserves held at the Fed. We can see it almost doubled from '94 to 2006 and then it really took off in the last few years from Quantitative Easing. Yet despite this enormous growth in base money, there still isn't nearly enough money in the system to repay our debts. You can see total Treasury obligations in the second row. The Fed would have to manufacture about 7 times more dollars than exist today for the Treasury to be able to meet its obligations. That's an obvious problem both fundamentally and for the global perception of dollar hegemony, which of course we see playing out today in FX markets. The seventy trillion dollar figure in the fourth row is an estimate of total dollar-denominated claims. This includes Treasury debt and unfunded federal obligations, as well as mortgage, auto, consumer, corporate, state and municipal debt. Think about this: 70 trillion in dollar denominated claims on top of 2 trillion in currency and bank reserves with which to repay it! The US economy is levered roughly 35 to 1 today. Certainly the gap doesn't need to close completely – there will likely always be credit balances larger than the base money stock. But given the sheer size and maturity of the US economy, it seems obvious this gap is biased to widen. Frame 4: We've found that in the current environment it's best to ignore what policy makers say — or even what they may intend to do — and better to rely on logic and history. There are only two ways economies can de-lever. Either the value of credit can deflate naturally, or the stock of base money can be expanded to an amount that would let debtors meet their obligations. Pick your poison. Credit deflation implies shrinking output and rising bankruptcies, unemployment, and maybe even social unrest. Monetary inflation, on the other hand, implies a general cheapening of the currency's relative purchasing power. In the end we think there's only one outcome. Monetary inflation is the only politically practical answer because most voters are debtors, and most debtors would greatly benefit from having the burden of repaying their debts inflated away. We expect politicians to be politicians and policymakers to execute policy. We don't expect familiar post-War monetary policies, or true austerity measures, or a strategy of waiting over time for everyone to accept their fate. Frame 5: The facts are that Western economies are now too big in nominal terms to sustain real production value. As a result, our public markets are financing very few capital-producing enterprises. More than ever we are funding speculation rather than production. In a fiat system there is no formal capacity constraint on money creation, and so in Western economies, where policy is dominated by Keynesian political economists mandated to actively solve economic problems, there is literally no mechanism to limit money creation. In such policy-centric economies we can have debt deflation and monetary base inflation at the same time. This odd combination challenges modern economic orthodoxy at its core, yet it describes precisely the current economic environment. Most contemporary economists and investors see "disequilibrium" today because their models have broken down. We think in reality they are mis-diagnosing inflation's pathology. For example, they call price increases "inflation", which of course is wrong. Money growth itself is inflation, as Von Mises, Hayek and Friedman showed. Most Western economists also model increasing demand versus supply as necessarily inflationary, which is wrong too. In a fiat system the supply of goods and services may overwhelm the demand for them, however price levels may be kept constant or even rise as demand falls — simply because central banks can decide to digitize more money. The point here is that money growth ultimately leads to price increases that may then show up in price baskets. Want proof? Most everyone didn't see the runaway inflation of the seventies until it was too late. The CPI, interest rates and capacity utilization were falling in 1972, much as they are today. But just two years later US CPI had risen from about 3% to 12%. Why did prices suddenly jump? Not because there were bad guys in the Middle East hiking oil prices or because there was bad weather in the US Midwest. Prices rose in the seventies because Washington started printing money in the sixties. This drove down confidence in the Dollar. Frame 6: Most investors today are not prepared for inflation. The pervasiveness of debt has shortened investment horizons. The almost universal objective is to seek relative-nominal, not absolute-real returns. Have you asked yourself why interest rates are near historic lows in the face of open-ended Quantitative Easing? Clearly it's because most bond buyers are generally unconcerned with positive real returns. As a result, today's low nominal rates are very negative when adjusted for the substantial base money inflation already experienced and the further inflation needed to de-lever the system. As in the seventies, the majority of capital won't position assets that promise to maintain purchasing power over time. So yes! We think bonds are in a bubble, but only when we view them in real terms. Even though they may send all money back at par, investors will get back bad money. Frame 7: Policy makers across economies are now actively targeting lower interest rates so their exports are more attractive. It's a Whack-A-Mole world. Today's competitive currency devaluations are tantamount to a high-brow food fight among governments, each having the primary goal of keeping their domestic economies going. Against this backdrop, Secretary Geithner wants to persuade surplus economies to sacrifice themselves so the US can maintain control over the global system. Clearly, this is a silly and dangerous state of affairs for global investors. Are we supposed to protect our future purchasing power by picking the currency managed by the politicians most willing to disappoint their home constituents? We don't think any fiat currency provides safe harbor because all will be inflated. What we're living through today is a textbook case of rotating debasement occurring just prior to the fall of a global monetary regime. No paper currency has survived in the history of man. They've all gone away. Frame 8: Solving for real returns narrows the list of acceptable investments. We like anything scarce and unlevered and precious metals and scarce consumable resources fit the bill. In periods of high inflation, wealth holders – wherever they are — don't confuse nominal price for real value. It's pretty straightforward: the supply of unencumbered necessities drops at low price levels, while the demand for them stays constant or rises. Prices must increase. Frame 9: We think the greatest upside and least risk is in precious metals, specifically gold. Why? Because gold is a currency, not a capital asset, that does not rely on output growth for appreciation. Its appreciation depends on the dilution of paper money vis-à-vis goods and services with inelastic demand properties. Gold is not an investment in the normal sense. It is cash in a scarcer currency. It has no more or less intrinsic value than the Dollars, Euros or Loonies in our wallets but it will maintain its relative scarcity to them. So then – the bubble we're seeing today is not in gold but in paper money, which has grown in the US by 130% in the last two years and is about to double again. Gold's so called "exchange rate" versus paper money will continually be re-priced higher. Frame 10: Have you asked yourself how the gold price has climbed for 10 years when consensus has been there's been no price inflation? We think it's because confidence in paper currencies has been dropping as their supplies have been increasing. Individual investors, hedge funds and now central banks have begun to dabble. Institutional investors are sure to follow. Goods and service providers and wage earners across the globe will continue to demand increasingly more paper for their goods and services. Frame 11: So how preposterous is it to expect a new global monetary system backed by inert rocks? Actually, it's not preposterous at all. Paul Volcker, as Undersecretary of the Treasury in 1971, was an influential voice when President Nixon broke the dollar/gold exchange standard — an idea that just a couple years before had seemed preposterous itself. Unsurprisingly, prices rose significantly in the following decade, even as output stagnated. Economists hadn't seen such disequilibrium before and called it "stagflation". Ten years later the same Paul Volcker as Fed Chairman had to raise overnight rates to a "preposterous" level at which paper money would again generate positive real returns. Yes, he whipped inflation but what he really did was save the dollar. By raising short rates to 20% he lowered the supply and stopped the ballooning velocity of money. Can higher interest rates save the day this time? We don't think so. The difference between 1980 and today is the pervasiveness of debt. Ben Bernanke can't raise rates even if he and the markets wanted to because it would trigger wide spread systemic defaults. We would have a substantial contraction in US economic output that wouldn't be shared by surplus economies (not to mention Western banks would be annihilated in the process). In practical terms, we can't lower rates below zero and we can't raise them. What about debt-focused quantitative easing? That won't work either. An economy can't be de-levered by issuing new debt or by transferring existing debt to government balance sheets. And consider this: in the last two years the US monetary base grew over 130% and yet output grew a total of only 7.5%. This compares to 88% growth in overall output over the previous twelve years on a 95% growth rate in base money. The point here is that the efficacy of monetary inflation on output growth has diminished substantially. So we think there has to be an unconventional way for policy makers to press the economic reset button — something as "preposterous" as breaking the gold exchange standard in 1971. Frame 12: We think we know what to expect: ultimately the Fed will formally devalue the dollar to gold and then it will conduct monetary policy on the much higher dollar/gold exchange rate, just as it has conducted credit policy with interest rates over the last generation. A few years ago, Lee and I modeled gold using the old Bretton Woods formula and we came up with a "Shadow Gold Price". When we divide today's US Monetary Base by official US gold holdings we arrive at a dollar value of about $8,000 an ounce. A big number to be sure, but math is math. An $8,000 gold price would represent the magnitude of dollar devaluation necessary to reconcile all past monetary base inflation. It is a price based on fundamentals, modeled using post-War experience. Is $8,000 a realistic target for gold? Why not? In fact we could see it rising even higher given the ongoing political imperative for monetary inflation. We shouldn't be price anchored. At its speculative peak in 1980, spot gold traded at a premium to the Shadow Gold Price. Today, it trades at an 80% discount. When gold was trading at $50 back in the seventies, who thought it would peak at $850, or who thought the NASDAQ would peak at 5000, or, for that matter, that 2-year Treasury notes would trade at 35 basis points today? As with all other multi-year bull markets, we think gold will go parabolic at some point before its bull run is over. Maybe it'll look like this blue line? Frame 13: And finally, despite all the chatter the data show that financial asset investors simply don't own gold yet. Gold ETFs total about 67 million ounces, which is only about $90 billion. The aggregate market cap of gold and silver miners is less than Google's. Only $2.6 billion flowed into all resource mutual funds in the third quarter. These small figures compare to about $26 trillion in pension money alone – a sector that has dedicated only about 56 basis points to precious metals. If we include all investment portfolios, we get a gold commitment of just 15 basis points. If you want to round that it would be 0%! Physical bullion is held in strong hands. Financial asset investors holding derivatives like Comex futures won't be able to take gold's price down for any length of time because fundamentals are not on their side and because they have no staying power in their positions. Besides, we know several central banks holding billions and trillions in paper dollar reserves that would have a bid for all they own – and more. Frame 14: So it is with great humility and rationality that I admit to you today: my name is Paul Brodsky and I am a gold bug…at least until the ratio of debt to base money contracts to the point where we can get positive real returns in financial assets again. Thanks for your time and I look forward to our discussion. http://www.ritholtz.com/blog/2010/11/brodsky-on-gold/ |
| Posted: 05 Dec 2010 11:48 AM PST --There they were, all around a heavy wood table in the office of the New York Federal Reserve. Paulson, Geithner, Dimon, Blankfein, Thain and more. Only Dick Fuld was missing. And that's because they were picking over his investment bank, Lehman Brothers, like a carcass. "The West is *&^#$%," says Paulson. --That was last night, when we were watching the BBC produced drama, "The Last Days of Lehman Brothers." Obviously no one at Rio Tinto, Fortescue Metals Group, or BHP Billiton was watching. Today's Australian Financial Review reports that Australia's three biggest iron ore producers plan to expand production in the Pilbara from 390 million tonnes last year to over one billion tonnes a year by the end of the decade. --The capital investment required to meet those production figures is not going to be small. And more importantly, it's based on a big idea: that the underlying demand for iron ore from China and the developing world may have peaks and valleys...but they're all headed in a long march higher and higher. --This is typical of the kind of hyperbole that you hear at the top of a commodity cycle. Producers announce big expansion plans, based on a demand that's growing as far as the eye can see. The trouble is, the eye can only see so far. Especially when it's got dollar signs in it. --If China's huge resource demand is itself derivative of the global credit boom of the last thirty years-which is our position as you might guess-that the record high terms of trade Australia's enjoying are not a new normal but the same old high you get before the downside of the cycling. There's nothing new under the sun, really. --But even if the long boom in China will last for many years (as the head of BNP Paribas' structured finance chief Dominique Remy believes) there is the little matter of China cooling its out of control consumer price inflation. The Wall Street Journal's Aaron Black reports that China's communist leaders are shifting to a more "prudent" monetary policy in 2011. --Black says, that "Analysts generally expect China to impose a lower target for total lending by banks next year, and have said there could be additional interest-rate or reserve-ratio hikes by the end of this year. The central government has also shown great concern over the social impact of higher prices, rolling out a series of measures intended to help lower the cost of daily necessities such as food." --Too late for that, gentleman. As we reported in the Friday weekly update to readers of the Australian Wealth Gameplan, lending in China has grown nearly as much in 2010 as it did in 2009, despite a much lower official target by authorities. That money torrent is driving up real estate prices and speculation.
Source: The Wall Street Journal --And while China tries to control the money pumps before the economy floats away on higher prices, the big takeaway from last week is that the Fed has now become the banker of last resort to the world. With the Belgians calling this weekend for an increased bailout fund in Europe, how long will it be before the ECB opens up new swap lines with the Fed to meet the European banking sectors mad demand for dollars? --Maybe this is why gold is beginning to get jealous of the recent strength in silver. Neither metal is paper, and both are money. Hence their strength. Gold moved back over $1,400.00 on Friday and was up $16.90 on the day. But have a look at the chart below to see what's coming.
--The chart is the gold/silver ratio, or the number of ounces of silver it would take you to buy an ounce of gold. When the line goes down, silver's getting stronger relative gold. When the line goes up, gold is moving up faster than silver. So what does the chart tell you? --It tells you that silver's recent strong move nearly retests its strongest position relative to gold in the last ten years. The historical ratio of gold/silver-based on the ration of gold to silver in the Earth's crust-is 15:1. Were that ratio to return, silver would trade around US$93. --Based on the chart below, we'd expect silver to take a breather. But that doesn't mean silver has to fall. It means gold may simply resume rising as two of the world's reserve currencies (the euro and the dollar) are knifed in the back by their masters. --Finally, Paulson's fictionalised speech last night in the BBC was supposed to capture the moment when Wall Street's elite recognise how much they've screwed things up. But there's no real financial catharsis. Lehman fails and everyone goes back to life before Lehman, with socialised losses, bailouts, and more leverage. Until the next crisis... Similar Posts: |
| Posted: 05 Dec 2010 11:48 AM PST This week, like the last one, was dominated by euro babel. Speaking in their various tongues, all at once, Europeans were talking nonsense. Especially Jose-Ignacio Torreblanca. The senior fellow at the European Council of Foreign Relations begins: "in an ideal world," he says it is "fair and rational" for people to get what they've got coming... referring to the people who lent money to Irish banks. He even quotes the old Latin maxim: fiat iustitia, pereat mundus (follow the rules, even if the world should perish). He should have stopped there. Instead, he misses the point he has just made. This time it's different, he says. Why? Because "there is a good chance that in real life the eurozone could be killed..." When the financial crisis hit in '08, Europe might have let the chips fall where they may. But for nearly a century, elected officials have thought they could keep the chips from falling at all. Instead of merely consuming and redistributing the fruits of the economy; they pretended, by enlightened management, to increase them. Few people noticed the audacity of it. But in a downturn, government no longer lets wealth perish. It counteracts corrections with "stimulus." And it doesn't merely provide a stable currency, it manages a "flexible" currency system to help guarantee full employment and prevent debt crises. By the 21st century, diddling the economy has become second nature...but much less effective. In the US, the fiscal and monetary stimulus of the early '30s - equal to about 8% of GDP - had a powerful effect. One year later the US economy was growing at an 11% rate. Nearly four score years later, a combined stimulus effort of about 30% of GDP produced a response of barely 2% GDP growth. As for last week's 85 billion euro Irish bailout, the market rally was over by tea time the following day. The trouble with trying to get the outcome you want is that you end up getting the outcome you deserve anyway. Ireland guaranteed bank assets nearly 6 times greater than the nation's GDP. Now, with unemployment at 20% and GDP down nearly 15% over the last two years, investors wonder how Ireland can possibly be good for the money. And they are beginning to wonder about Spain, Portugal, Italy and even France. Between them, French and German banks hold nearly a trillion euros worth of peripheral European nations' debt. How long will it be before they go down too? The Irish bailout may cost about 100 million euros. Spain is ten times as big. These were "unthinkable" thoughts, said former Italian Prime Minister, Romano Prodi. The periphery states benefited from the low interest rates of the Eurozone. With lending rates at 3%, instead of the 10% rate it had before it took up the euro, Irish property boomed. Irish banks were able to lend their way to insolvency. When the bust came, potential losses became real losses. But insolvent institutions do not become more solvent by borrowing more money. By the time the fix for Ireland is fully implemented, the Irish government will be deeper in debt - with a quarter of its GDP needed for debt service. At that level, they will be sunk. And you can forget about "growing" out of this debt problem. This year, for the first time ever, more Europeans will retire than join the workforce. Retirees are not producers of tax revenues. They are consumers of it. Besides, how will the Irish economy grow at all, with the government cutting back by 10% of GDP over the next 4 years, probably followed by another 10% cut when this one proves insufficient? But that's what happens. One manipulation leads to another improvisation. You pretend it's a matter of principle, but you've already thrown out the "iustitia." You're just trying to get what you want, making it up as you go along. The euro is a managed paper currency, like the dollar. Still, it is not managed enough for many Europeans. The Irish might revolt, leave the euro, and bring back the punt. In the old days of drachma and pesetas, Europe's sunny countries could scam their lenders with shady currencies. There is even a proposal to introduce a new currency, known either as the "medi" or the "sudo" - designed to help Europe's periphery states to manage their way out of their financial obligations. A weaker currency would lower the real value of debts, employment contracts, pensions and just about everything else. "There will be no haircut on senior debt," said Olli Rehn, the EU's commissioner for economic and monetary affairs, still trying to keep the chips in the air. And why not? Because the consequences are unthinkable? No, he's thought about them. He just doesn't like them. But who cares? You can't really manage an economy. You have to let it happen. Here we offer some constructive criticism: Stop worrying. What will happen if lenders suffer the losses they deserve? We don't know. But we'd like to find out. Regards, Bill Bonner, |
| The Pros and Cons of Investing in India Posted: 05 Dec 2010 11:48 AM PST What about investing in India? "The Sensex seems much too high to us," we replied. "Then again, there are a lot of companies that are little researched that are cheap...and growing fast. "What I like about the Indian economy is that it seems to grow no matter what happens. Boom, bust, assassination, tsunami, riot - it doesn't care. "And it grows in spite of what the government does. There is some rule of nature, as yet unidentified: all governments do stupid things. But the more mature the government, the more stupid things it does. "It is probably because mature governments have more money - at least in the rich countries. So, they subsidize everybody. The old. The young. The halt. The lame. The farmers. France even subsidizes the press. "As the tide of subsidies washes in, the incentive to work hard ebbs away. People become used to getting by without doing very much. They get used to conniving with the feds, rather than engaging in difficult and uncertain businesses. "You don't have that problem in India. There is plenty of corruption, but it is limited to the powerful groups that control the legislature and the government. The middle and lower classes do not expect much in the way of handouts; there hasn't been enough money available. "So, the economy is still fairly light on its feet. Wages are low. People are getting rich fast. Government tries to stifle progress and make sure wealth gets funneled to cronies and apparatchiks, but the economy is largely out of control. The politicians pass new legislation every day. And the economy grows at night. "And right now there are too many people earning too much money. They can't be stopped. They won't allow government to hold them back. Instead, the regional governments will begin to compete with each other to offer infrastructure and lifestyle improvements. Politicians will get out of the way, for fear they will be booted out of office if they prevent people from getting the wealth they feel is within their grasp. "India looks good. Maybe not next year. Maybe not the year after. And maybe not the leading companies. But I would like to make an investment in India, go away for twenty years, and see what it was worth when I came back. "Of course, twenty years from now...I'll be happy to be able to come back at all." *** How 'bout that Obama! He's put on the imperial purple: "He stayed at your hotel, the Oberoi," said a colleague. "His team took up the whole hotel. It was unbelievable. They took up the hotel next door, too. There were helicopters overhead all the time. And US warships had been sent to block the harbor to make sure terrorists didn't run up onto the beach in small boats, like they did the last time. "We've never seen anything like it in India. "One of the local papers computed the cost of the visit at something like $100 million. The report got picked up by the US press. Then the White House denied it and then said it wouldn't give the real figure for national security reasons. Ha ha... "A hundred million was probably about right..." Regards, Bill Bonner, |
| J.P. Morgan vs. Silver: so Far – go Gold Posted: 05 Dec 2010 11:12 AM PST Gold had a "remarkable" rise of some +30% since the beginning of this new decade. Silver even had a "sensational" year rising some +70%, which equals to silver outperforming gold 2.3-fold: so far - so good. |
| Posted: 05 Dec 2010 10:00 AM PST Silver is once again at new 30-year highs as the metal resumes its parabolic ascent. The gold/silver ratio fell again and now stands at 47.4, the lowest level since March 2008. |
| Posted: 05 Dec 2010 10:00 AM PST A rebound in the US dollar that came despite some 'accommodative' remarks made over the weekend by Fed boss Ben Bernanke was the main catalyst for keeping most metal prices from making more gains early Monday. |
| Got Gold Report – Gold, Silver Sizzling Posted: 05 Dec 2010 08:47 AM PST Both gold and silver turned in stellar performances this week as the herky-jerky Forex market continued to make mincemeat out of all but the most nimble of short-term Forex traders. Gold actually closed out a week above $1,400 nominal in USD for the first time ever and silver followed suit with a $29 handle showing on the last Friday trade on the Cash Market – another new 30-year intra-day high of $29.35. |
| Posted: 05 Dec 2010 06:58 AM PST There can be no greater travesty of "reporting" by the mainstream media than their failure to warn investors of the horrifying risks which accompany any investments in the bond market today. It is a greater failure than when they failed to warn investors adequately about the NASDAQ tech-bubble, and a greater failure than when they failed to warn investors about the massive U.S. housing bubble (and Wall Street Ponzi-schemes associated with that bubble). There are two reasons why this failure outweighs even those previous episodes of catastrophic myopia. First of all, the global bond market is much larger than either the NASDAQ, or the U.S. housing market (even at their bubble-peaks) – thanks to the mountains of sovereign debt which the bankers have seduced our "leaders" into creating. Secondly, unlike those suckers in the tech-bubble or the U.S. housing market at those bubble-peaks, the chumps in today's bond market have no possible up-side to their investment. It's one thing to be foolish enough to "invest" in a market at the peak of one of history's greatest asset-bubbles. However, it requires a quantum-leap in stupidity to buy into one of history's greatest bubbles when the only, possible direction in which that investment can go is down. To understand the situation in the bond market properly, it's first necessary to note a trait which is totally unique to bonds (among conventional investments). The bond market is always going "up". When interest rates fall, and the "yield" on the bond declines, the price of that bond rises by an equal, inverse amount. Conversely, when the price of a bond falls, this automatically means that its yield rises (again by an equal, inverse amount). I will not criticize the media for reporting on the bond market as the proverbial glass that is always "half-full", other than to observe that it is a trait which is common to all shills. The point to be made here is that unique to all investments, bonds have a built-in "hedge". For conservative investors, that has always been an attractive selling point. However, what readers (and investors) must be aware of is that because bonds are perfectly hedged in this manner, this automatically greatly limits the net gain which can possibly be earned by an investor. If the bond increases greatly in price, the yield plummets. If the yield soars, the bond-holder suffers a capital loss to eat into that gain. Indeed, under the best of circumstances bonds can only be recommended as a rational investment when there is a significant, positive (real) differential between the yield on the bond and the rate of inflation. Any time that this yield differential is zero, or worse, negative, then bonds become a guaranteed money-loser as a long-term investment. Yes, the capital appreciation of bonds might bail out an investor under those circumstances, but that brings us to the second unique trait of bonds: a maximum price. Buy an equity, and the theoretical gains are potentially infinite, since an infinitely profitable company could generate a theoretically infinite share price. Conversely, bonds have an absolute ceiling on their price: when interest rates approach zero. Thanks to the Federal Reserve buying-up every U.S. Treasury in sight (because "QE I" never ended), U.S. interest rates are at their absolute lows. Short-term yields are virtually zero. And while longer-term yields are significantly higher, we now know that those interest rates are as low as they can possibly go (over any kind of longer time horizon). We know this because "QE II" was supposed to bring down both short-term interest rates and (more importantly) longer-term rates. In fact, longer term rates have edged higher since "QE II" was announced – a clear message from the market that the Treasuries-bubble has reached its saturation point, and no matter how many Bernanke-bills "Helicopter Ben" cranks-out on his printing press, the only possible direction for U.S. interest rates is higher. In other words, absolutely the only possible direction in which the U.S. bond market can go is lower. That brings us to the questions: how low, and how fast? |
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