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Thursday, January 6, 2011

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Did the S&P 500 Gain 20.7% or Just 1.8%? Depends on Your Currency

Posted: 06 Jan 2011 06:42 AM PST

Zecco submits:

By Richard Bloch

After writing my recent post on the price of gold in euros, I saw this article on Bloomberg that explained how Europeans who invested in U.S. stocks got their “best returns in a decade.”


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Why Gold and Silver Will Decline Even Further!

Posted: 06 Jan 2011 06:30 AM PST

Despite all the reasons to be bullish gold and silver all of my indicators tell me this is [still] NOT the time to be buying. Words: 910

Futures Narrowly Higher After Inline Initial Jobless Claims

Posted: 06 Jan 2011 06:25 AM PST

Gary Townsend submits:
This morning. After Tuesday’s breather, equity markets posted solid gains Wednesday, Volume declined. The DJI, SPX and NASDAQ closed at fresh 2-year highs. The NYSE composite stands just below last Monday’s 2-year closing high. March SPX futures are higher, up +1.31 points after fair value adjustment at 1273.50. Distribution days number 2 for the SPX, 3 for the NYSE, and 4 for the NASDAQ. Markets remain in a confirmed uptrend. Next SPX resistance is at 1275.33. Next support is at 1263.87.
Asian equity markets closed mixed, with Chinese equities lower for the 2nd consecutive day on a rumor that a large insurer was undercapitalized. The Nikkei, Hang Seng and Shanghai closed +1.44%, +0.12%, and -0.50%, respectively. Volume was lower on the SHCOMP, avoiding a distribution day. The SHCOMP is in a confirmed uptrend after a sharp -13.5% decline starting November 9 and ending December 28. European equity markets are higher, following yesterday’s strong U.S. equity gains. The Eurostoxx50, FTSE, and DAX are higher, +1.01%, +0.72%, and +1.18%, respectively. On the EuroStoxx, financials are up +1.05%.
LIBOR trends are unremarkable. Overnight USD LIBOR is 0.24375%, unchanged from yesterday and 0.25188% at year-end. USD 3-month LIBOR is 0.30313%, up from 0.30281% yesterday, and the first uptick since December 20. In early trading, the dollar is slightly weaker against the euro, yen and pound. The euro trades at US$1.3104, compared to US$1.3149 Wednesday and US$1.3308 the prior day. The dollar trades at ¥83.17, compared to ¥83.25 Wednesday and ¥82.04 the prior day. Treasury yields are lower, with 2- and 10-year maturities yielding 0.689% and 3.432%, respectively, compared to 0.704% and 3.465% Wednesday. The yield curve spread narrowed to +2.743% compared to +2.761% the prior day. In the past year, the 2- and 10-year spread has varied from a low of +1.959% on August 26, 2010, and a high of +2.90% on January 11, 2010. Commodities are extending their sell-off, with lower petroleum but higher natural gas, lower precious metals, aluminum, and copper, and mixed agricultural prices.
U.S. news. Economic reports are light today, with another weekly initial jobless claims report at 8:30, which provides another data point prior to tomorrow’s December jobs report. Initial claims were 409K, compared to survey 408K and 388K prior. Continuing claims were 4103K, compared to 4080K survey and 4128K prior. Yesterday’s strong ADP employment report helped reverse yesterday’s early negative move. The 112th Congress convened yesterday, and the accompanying breathless commentary continues this morning.
Overseas news. This morning, France will reconsider its 35 hour work week, with officials calling the existing requirement “untenable.” Greek Prime Minister Papandreou continues to push for Eurozone bonds. At today’s meeting, the European Commission will press a proposal that imposes a haircut on senior bank bondholders.
In December, the U.K. purchaser managers index fell to 49.7, missing estimates and falling below 50 for the first time since April 2009. Some Chinese provinces are cutting off power to high usage industries amid a coal shortage. Japan’s December PMI rose to 50.2, the second consecutive rise and the highest level since April 2010.
Company news/research:
Downgrades:
  • Comerica (CMA) – Cut to sell at Citi, price target remains at $40
  • CMA – Cut to market perform at Oppenheimer
  • CMA, KeyCorp (KEY) – Rated new reduces at Nomura
  • SunTrust Banks (STI) – Cut to underperform at Oppenheimer
Reiterations:
  • Fifth Third Bankcorp (FITB)/Regions Financial (RF)/STI – Cautious comments from WSJ’s Heard on the Street column, saying lofty valuations leave little room for M&A premiums.
  • Mid-cap banks – Cut to market perform at Credit Suisse
  • Discover (DFS) ($20 price target), American Express (AXP) ($46), Wells Fargo (WFC) ($33), U.S. Bankcorp (USB) ($28), FITB ($15), BB&T (BBT) ($27), Zions Bankcorp (ZION) ($25), City National (CYN) ($62), First Horizon (FHN) ($12), STI ($29), and Synovus Financial (SNV) ($2.60) – all rated new neutrals at Nomura
Upgrades:
  • PNC Financial (PNC)/Huntington Bancshares (HBAN)/RF – Rated new buys at Nomura
  • Capital One (COF) – Rated new buy at Nomura, price target of $52
  • BBT - Raised to buy at Oppenheimer
  • COF – rated new buy at Nomura, price target of $52
  • JP Morgan Chase (JPM)/BlackRock (BLK)/Goldman Sachs (GS)/Prudential (PRU) – Top 2011 long financial ideas at Credit Suisse
  • COF/AXP – top 2011 specialty finance picks at BofA/ML
  • PNC – raised to a short term buy ahead of 4Q10 earnings at UBS
  • Annaly Capital Management (NLY) – Raised to buy at BofA/ML
Wednesday’s equity markets. Despite strong economic news, markets gapped lower, but quickly reversed, moved into positive territory by noon, and rallied through the afternoon to close just short of the day’s highs, as on the week’s previous closes. Though markets opened lower, they never tested initial support levels. The SPX ended an impressive +12.27 points above its intraday low. All major indexes ended higher, with the NASDAQ +0.78%, followed by the SPX, DJI and NYA, +0.50%, +0.27%, and +0.22%, respectively. Volumes in each were lower.
Themes were similar to those of recent days. Early weakness was viewed as a buying opportunity. Economic data far exceeded surveys. As indicated by volumes, investors continued to build long positions, rather than take profits or position short. The best performing market segments were financials, telecommunications and technology, which all ended up at least +0.58%. Health care, basic materials and utilities were the worst performers, with only the latter closing lower.
Technical indicators are generally positive. All major indexes closed above their respective 200-week and 20-, 50-, 100-, and 200-day averages. Markets are in a generally bullish configuration, with 50-day moving averages above respective 200-day moving averages. New 52-week highs versus lows were +159, compared to +178 the prior day. The new HILO trend is trended upward, with a 10-day moving average 167.6 above the respective 20- and 50-day moving averages (155.90 and 154.74). Directional movement indicators are positive, and the trend is strengthening. The principal negative is that short-term relative strength indicators have moved into an overbought range. Prospective resistance levels are 1280 on the SPX, followed by 1290-94, and 1300; technical support is at 1260, followed by 1250, and 1230.
Market volatility moved significantly intraday, as the VIX rose as high as 18.24 at 1:00, but closed down -1.31% at 17.38, compared to 17.61 the prior day. Market sentiment is positive, probably excessively so, though off recent highs. The latest week’s (January 6) AAII Investor Bullish Sentiment index rose to 55.88, up +8.27% from 51.61 on December 30. Sentiment indicators are highly variable and are often best read as contrarian in their aspect. Despite positive sentiment, there are many market skeptics, too, and they have hardly capitulated, based on endless business network interviews and research that passes this desk.
Once again, financial stocks seized market leadership, with the (XLF), BKX, and KRX ending +1.20%, +1.35%, and +1.60%, respectively, in heavier trading. Credit card-related AXP and COF rose +2.48% and +4.21%, respectively. Money center and investment banks performed exceptionally well, with Bank of America (BAC) adding another +1.83% and C +1.43%. PNC rose +1.93%, MS +1.26%, and GS +0.53%. Regional banks actually outpaced the larger banks. While the broader indices are near two-year highs and have recovered their post-September 2008 losses, bank stocks have not, with the BKX closing -6.90% below its April highs and -34.7% below its best level of 82.55 in September 2008.
NYSE Indicators. Volume declined -4.35% to 1.043 billion shares, from 1.090 billion shares Tuesday, and compares to a 988.11 million share 50-day moving average. Market breadth was positive, and up volume led down volume. Advancing stocks led decliners by +626 (compared to +1220 Tuesday), or 1.52:1. Up volume led down volume by 2.37:1.
Valuation. The SPX trades at 13.5x estimated 2011 earnings (revised to $94.61 from $97.18) and 11.9x estimated 2012 earnings ($107.31), compared to 13.1x and 11.8x respective 2011-12 earnings yesterday. The 10-year average median Price/Earnings multiple is 20.0x. Since the beginning of 2010, analysts increased 2011 and 2012 earnings estimates by +2.3%, and +3.1%, respectively. Analysts expect 2011 and 2012 earnings to exceed 2010 earnings by +18.4% and +34.3%, respectively.
Large-cap banks trade at a median 1.58x tangible book value and 15.9x 2011 earnings, compared to 1.58x tangible book value and 14.5x 2011 earnings yesterday. These compare to the 10-year average median multiples of 3.08x tangible book value and 15.9x earnings. Analysts expect 2011 large-cap bank earnings to exceed 2010 earnings by +34.3%. Analysts’ estimates for bank 4Q2010 earnings are 20.6% higher than were estimates for 3Q2010 earnings. In 3Q2010, large-cap banks earned $13.78 (the sum of 31 banks’ operating EPS), compared to $5.32 in 3Q2009. In 3Q2010, the BKX earned $0.71 per share, compared to -$1.24 per share a year earlier.
SPX. On lower volume, the SPX rose +6.36 points, or +0.50% at 1276.56. Volume fell -3.56% to 797.91 million shares from 827.31 million shares Tuesday, above the 778.32 million share 50-day moving average. For the 54th consecutive day, its 50-day moving average closed above its 200-day moving average (1220.88 versus 1147.83, respectively). The SPX closed above its 200-week moving average (1184.38).
Despite the ADP employment report surprise, the SPX opened lower, setting its intra-day low of 1265.36 at the open. The SPX immediately reversed, as stocks rallied through the morning as Treasury bonds prices sank. The SPX reached break-even by 10:15, but briefly fell back. After 10:30, the rally resumed, pushing the index to 1275, up +5 points by 11:30. Momentum slowed through the afternoon, but the index still rose, setting its intra-day high of 1277.63 at 3:12. The SPX traded sideways into the close to finish. The SPX closed +4.56 above its 50-day moving average (1220.88), closing above that average for the 86th consecutive day, and +11.21% above its 200-day moving average (1147.83). The 20-, 50-, 100-, and 200-day moving averages rose.
Technical indicators are positive. The SPX closed above its April highs for the 24th straight session, above 1270 for the third consecutive day, and set a new two-year high. The directional momentum indicator is positive, with an increasing trend. Relative strength rose to 76.10 from 73.63, well into an overbought range. Next resistance is at 1281.01; next support is at 1268.74.
BKX. On higher volume, the KBW bank index closed at 53.95, up +0.72 points or +1.35%. The index closed +25.52% above its August 30 closing low of 42.98, the trough of the recent prior correction, but -6.90% below its April 23 closing high.
Once again, banks were the best performing market segment, and regional banks outperformed the large-cap banks. The BKX also opened lower, but with significant positive momentum. Aided by Goldman’s sell-side recommendation to buy BAC call options, the BKX turned positive by 9:45 and rallied straight through 1:00 to the 53.90 level. Buyers took a breather through the afternoon until the slight dip was bought after 2:15, pushing the index to an intra-day high of 53.00 at 3:12. Small profit taking after the mini-rally sent the index slightly down into the close, and the BKX finished at 53.95. The index closed above 50 for the 13th straight day. Volume rose +4.15% to 156.17 million shares, up from 149.94 million shares Tuesday, and above the 153.76 million share 50-day average.
Technical indicators are positive. The BKX closed above its 20-, 50-, 100-, and 200-day moving averages (51.39, 48.40, 47.24, and 49.08, respectively), closing above the 200-day average for the 20th straight session. The 20-, 50-, 100-, and 200-day averages all increased. The 50-day moving average closed (by -0.67 points) below the 200-day moving average, as it has since August 16, though the spread continues to tighten and signals a likely “golden” cross next week. The directional movement indicator is positive, at the highest level since mid-April, with an increasing trend. Relative strength rose to 74.06 from 71.23, an overbought range. Next resistance is 54.34; next support at 53.28.
Disclosure: I am long AXP, COF, NLY, JPM, SNV, BLK, GS, PNC, HBAN, CMA, JPM, BLK, USB.

Complete Story »

CDS Markets: The Ultimate Ponzi-Scheme

Posted: 06 Jan 2011 06:18 AM PST

As the general public begins to become familiar with some of the "financial weapons of mass destruction" which the banker oligarchs call "derivatives", the media has continued to do an utterly dismal job of educating readers.

Talking-heads regularly parrot "credit default swap" prices on various mounds of festering, Western debt. Sadly, they never take the time to explain precisely what a credit default swap is, nor how the market functions. The reason this is of such great importance is that the minute there was a broad understanding of what a "CDS" really is, there would be an instant uproar that these financial abominations be permanently excised from global debt markets.

A "CDS" contract is nothing but make-believe "insurance". The party wanting to issue more debt ensures that there is some chump purchasing a CDS contract on their debt, and then merely on the basis that this debt is now "insured", the debtor magically gets to pay a much lower interest rate on the debt they issue. Indeed, the "magic" of these CDS contracts is precisely how the banksters duped idiot-politicians and institutional debtors to amass more than $60 trillion in CDS contracts – roughly equal to the entire, global GDP.

That's right, one single banker Ponzi-scheme (primarily created by the odious Wall Street Oligarchs) has grown as large as the entire global economy and when this debt-bubble bursts it will cause a financial meltdown which will make the Crash of '08 look like a very pleasant picnic, in comparison.

To illustrate precisely how terrifying this debt-bubble has become, we need only look at how little the world's worst deadbeats must pay to "insure" their debt. Understand that all insurance is nothing more than a "bet" that the premiums paid to the insurer will exceed the pay-outs to the insured. Thus, the size of these premiums equates to the "odds" which the market has placed on (in this case) the insured party defaulting on its debt.

In the Land of Deadbeats (otherwise known as the United States), the current "champion" is the state of Illinois. Illinois simply didn't even pay $6 billion of its bills from the last fiscal year (equal to 25% of total spending), and is looking at an upcoming "deficit" equal to 50% more than its total borrowing-and-revenues can bring in.

In short, it is already defaulting on its debts, and there is absolutely no possible way it can borrow enough, or cut spending by enough that it will be able to pay its bills this year – let alone catch-up on the $6 billion this deadbeat owes from last year. It is hopelessly insolvent, and bankrupt in all but name.

And to insure $10 million of its debt costs only $350,000. Gamblers out there (and anyone with a half-decent grasp of numbers) will tell you that the credit default swap market is currently betting 30:1 against a default by Illinois.  This is much like making a 30:1 bet that a hospital patient will survive a risky operation after the patient has already been pronounced dead.

Keep in mind that these credit default prices for Illinois have only recently exploded to these new highs. The chumps who "insured" Illinois' debt for last year (including the $6 billion in unpaid bills) would have received  a much lower premium for their bet – meaning the odds (and their potential pay-out) is much, much greater.

Knowing the ridiculous leverage that the players in this market have taken upon themselves in insuring extremely risky debt is literally only half the "horror story" here. The other half is contemplating whom is (supposedly) insuring all of this bad debt. In fact, it is the same banking oligarchs who created this $60+ trillion Ponzi-scheme who are supposedly "backing" all of this debt – despite the fact that most of these financial institutions have only avoided their own bankruptcies via massive taxpayer hand-outs.

That's right, we have deadbeats insuring deadbeats.

The obvious question from the above example is: how could anyone possibly be foolish enough to place a 30:1 bet against a bankrupt entity defaulting on its debts? The answer is equally obvious: these bankers have bet (at huge odds) that the U.S. government will come running to Illinois' aid – chequebook in hand.

Global X Launches Aluminum ETF

Posted: 06 Jan 2011 06:14 AM PST

Michael Johnston submits:

In 2010, Global X launched a number of niche ETFs focusing on companies engaged in the extraction and refinement of various commodities, including lithium (LIT), uranium (URA) and silver (SIL). The New York -based issuer made the first 2011 addition to its suite of commodity ETFs on Wednesday, rolling out the first fund to offer pure play exposure to the aluminum industry. The Global X Aluminum ETF (ALUM) will seek to replicate the performance of the Solactive Global Aluminum Index, a benchmark that consists of companies that are active in some aspect of the aluminum industry, such as bauxite aluminum ore mining, production or refinement.

“We are pleased to offer the Aluminum ETF, which follows in the footsteps of our other highly successful industrial metal ETF, the Global X Copper Miners ETF,” said Bruno del Ama, CEO of Global X Funds, in a press release. “Aluminum has seen tremendous price increases as a result of increased global demand, especially from China and India. Its invaluable properties to various industries make it essential for future economic growth.”


Complete Story »

Gold Investing: The Time to Jump Back in Is Very Near

Posted: 06 Jan 2011 05:51 AM PST

By Michael Lombardi, MBA

Gold prices are falling, which could mean a good opportunity to buy gold or gold-related investmentsPardon the rudeness, but I'm salivating at the mouth this morning. After a rocky start to 2011, it looks like I might finally get my opportunity to buy more gold investments…and it could happen today.

On January 4, 2011, gold bullion fell $44.10 U.S. per ounce. The next day, January 5, 2011, it fell another $5.10 an ounce. This morning, as I write this issue of PROFIT CONFIDENTIAL, gold bullion is down another $9.90 an ounce. In three trading days, we are looking at a $59.00-an-ounce haircut for gold bullion.

In late 2010, on these pages, I wrote that I would be a buyer of gold-related investments if gold bullion reached $1,370 U.S. per ounce. The price of gold bullion reached a record high of $1,421 an ounce on November 9, 2010, followed by $1,421.60 per ounce on December 31, 2010. At today's price, I can buy gold investments at $50.00 an ounce off the record high, which I consider a deal.

So my first step will be to buy more gold investments today if gold remains under $1,370 an ounce. My next step will be to buy more gold investments if gold gets down to $1,320 (which is a seven-percent correction off its high). Hence, I'm buying gold investments on dips on the prices of gold bullion. Unlike many other advisors, I see corrections in the price of gold as an opportunity to buy, not bail. This strategy has served me well for almost 10 years now.

My gold bug readers may find the following chart interesting. It is the close of the price of gold bullion at December 31 each year going back to 2002 (the year I really turned bullish on gold). I publish this chart in January of each year for the benefit of my readers.

Date Closing Price of Gold
Bullion per Ounce
Dec. 31, 2002 $348.00
Dec. 31, 2003 $416.00
Dec. 31, 2004 $438.00
Dec. 31, 2005 $519.00
Dec. 31, 2006 $638.00
Dec. 31, 2007 $838.00
Dec. 31, 2008 $889.00
Dec. 31, 2009 $1,097
Dec. 31, 2010 $1,421

In this business, they say "Don't fight the tape," also known as "The trend is your friend." The above trend has been an investor's dream for almost 10 years running. I intend to continue profiting from the trend of rising gold prices.

Michael's Personal Notes:

Investors often ask me what news sources I follow each day to keep up the stock market. Do I watch the business TV stations like CNBC or Bloomberg or listen to them on the Internet or in the car? The answer is no, I do not follow the investment news on an hourly or even daily basis.

Why? Because a trend takes time to develop. Sure, I follow the economic news closely. I read three major business newspaper a day and I have my favorite Internet sites (like everyone else) to get more in-depth economic reports. But follow the markets on an hourly or even daily basis and you are no longer an investor; you are a trader.

The events that led to the real estate crash of 2007 took years to develop. Similarly, the events that led to the credit crisis of 2008 took three years to develop. The stock market low of March 2009? Well, that took two years to develop.

Stock market and commodity trends take months and years to develop. What happens hourly, daily or even weekly does not lead to a sustainable trend an investor can profit from. I've always made money looking at the overall, longer-term trend actions of the economy and how they relate to the stock market. In other words, I don't sweat the small hourly, daily or weekly stuff. Neither should my readers.

Where the Market Stands; Where it's Headed:

Yesterday, I "blew the horn" on the market and announced that I'm turning bearish on stocks as we start off 2011. A group of sentiment indicators we follow are flashing red, as too many investors and advisors have turned bullish on the stock market. If it were not for the outright expansive and unheard-of generous monetary and fiscal stimulus the government has in place, I would be outright bearish.

But the trend is your friend. Since March of 2009, I have been saying that we are in a bear market rally, and I continue to hold that opinion. Until we have confirmation by the stock market to the contrary, and aside from the fact that I'm turning short-term bearish on the stock market, in the immediate term, the bear market rally that started 22 months ago still has life left in it. But investors should tread carefully.

What He Said:

"When property prices start coming down in North America, it won't be a pretty sight, because consumers are too leveraged. When consumers have over-borrowed so much that they have no more room in their credit lines to borrow more, when institutions start to get tight on lending, demand for housing will decline and so will prices. It's only a matter of logic, reality and time." Michael Lombardi in PROFIT CONFIDENTIAL, June 23, 2005. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.

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Gold Bullion Holdings Information Is Dubious

Posted: 06 Jan 2011 05:50 AM PST

Avery Goodman submits:

Some commentators on precious metals markets focus a lot of attention on the statistics about bullion holdings that are reported by the various ETFs. Just yesterday, for example, there was an article at Reuters warning about the declining bullion holdings of the SPDR Gold Trust (GLD), which happens to be the largest gold ETF in the world, holding more gold than most sovereign nations. Their total bullion stocks supposedly fell to a 7 month low of 1,272.682 tonnes on Jan 5, 2011.[i] This fact apparently shakes up a lot of investors, who shiver in their boots every time the total holdings of the various gold ETFs drop.

Assuming that the ETF actually holds real gold bullion[ii], when GLD expands it is very meaningful. It means that a certain amount of gold bullion has been removed from the marketable supply, thereby tightening the market and causing prices to be pressured upward. However, the fact that the ETF may shrink actually means nothing in and of itself. This is because we do not know why its holdings have contracted.


Complete Story »

Less Than 35% of All Stocks Are Undervalued

Posted: 06 Jan 2011 05:48 AM PST

Richard Suttmeier submits:
ValuEngine now shows that only 34.6% of more than 5,000 stocks are undervalued with 65.4% overvalued. A reading below 35% may persist for a while, but typically the stock market tops out when less than 35% of all stocks are undervalued. Fifteen of 16 sectors are overvalued by 8.6% for Consumer Discretionary to 33.1% for Basic Industries. Medical is the undervalued sector, but only by 1.4%. The major equity averages are extremely overbought on both daily and weekly charts. The missing ingredient for a top is the lack of nearby risky levels for the major averages. The major equity averages straddle quarterly value levels, pivots and risky levels favoring a reversal-oriented first quarter – 11,395 Dow, 1162.5 SPX, 2853 NASDAQ, 4671 Transports and 765.50 Russell 2000. The rise in the 30-year yield above 4.5% is a major drag on equity valuations. With stock market complacency as high as it is, Comex gold closed below its 50-day simple moving average at 1380.6 for the first time since August 11. Nymex crude oil is above this week’s pivot at $88.50. The euro is between its 200-day at 1.3080 and its 50-day at 1.3422, approaching a test of the 200-day. The Dow is well above my annual pivot at 11,491 without a nearby risky level as the MOJO run continues.
Valuations are stretched with only 16.1% of all stocks undervalued by at least 20%, whereas 33.0% of all stocks are overvalued by more than 20%.
(Click to enlarge)
It is difficult to find stocks to add to the ValuTrader Model Portfolio as only 76 stocks are rated STRONG BUY or BUY with a market cap of at least five billion and average daily trading volume of 500,000 shares or more, and projected to gain at least 7.5% over the next twelve months. There are twelve stocks in the model portfolio.
Key Levels From My Proprietary Analytics
10-year Note – (3.483) Weekly, annual and semiannual value levels are 3.714, 3.791 and 4.268 with a daily risky level at 3.371. Annual, semiannual and monthly risky levels are 2.690, 2.441, 2.322 and 2.150.
Comex Gold – ($1373.7) Annual, semiannual and annual value levels are $1356.5, $1300.6 and $1187.2 with a weekly pivot at $1380.0. Daily, monthly, quarterly and semiannual risky levels are $1412.74, $1439.0, $1441.7 and $1452.6.
Nymex Crude Oil – ($90.30) Semiannual and monthly value levels are $87.52 and $75.74 with a weekly pivot at $88.50. Annual, semiannual and quarterly risky levels are $99.91, $101.92, $107.14 and $110.87.
The euro – (1.3149) Monthly and weekly value levels are 1.2805 and 1.2703 with quarterly and daily pivots at 1.3227 and 1.3358, and semiannual and annual risky levels at 1.4624, 1.4989, 1.6367 and 1.7312.
Daily Dow: (11,723) Annual, quarterly, weekly, semiannual, monthly and semiannual value levels are 11,491, 11,395, 11,334, 10,959, 10,427 and 9,449 with a daily pivot at 11,687, and annual risky level at 13,890.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Complete Story »

Irish Bank Run Has Started

Posted: 06 Jan 2011 05:42 AM PST

"Some may recall how the very contentious topic of Greek deposit bank runs was arguably the key catalyst to push Greece (and its banks) to accept a bailout from Europe, after the country realized it had little cash left (and the associated SNAFU in which RBS proved it really has no clue about anything). Well, it is now Ireland's turn, and as the chart shows, the Irish bank run has already commenced, with locals not even bothering to wait until the December 7 coordinated "pull your money" Pan-European D (for default)-Day."

"Bank of America brings attention to this issue, which will likely be the last liquidity event before not only a full bailout of Ireland has to  be implemented, full terms be damned, but becomes the catalyst for on-going CHF strength as European deposits once again rush to the relative safety of the last remaining relatively stable European currency (and of course gold). The result will be an ongoing squeeze in Switzerland, which we now believe may be one of the first countries from the core to feel the vigilantes' wrath shortly after Spain is bailed out, some time in Q1 2011." (Editor: Swiss Franc rally is underway). - Tyler Durden  Zero Hedge.com 11-23-10

We reported corporations took out $13 Billion over the past 90 days. Now retail bank deposits are moving out.


"Deposit flight from Ireland accelerated in September, the latest month available, to a +3.6% annual rate. Clearly, with market prices eroding since then it is probable that deposit outflows continued in October and November. Under such a scenario we would expect a liquidity intervention solution to be forced by threat of further liability funding pressure that would result from such deposit flight. That would mark a short run liquidity solution to a long run solvency problem." – Tyler Durden  Zero Hedge.com 11-23-10


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Just One ETF: Large Caps Benefit From Healthier Earnings, Weak Dollar

Posted: 06 Jan 2011 05:38 AM PST

Aradhana Gupta Kejriwal submits:
Several times a week, Seeking Alpha's Jason Aycock asks money managers about their single highest-conviction position - what they would own (or short) if they could choose just one stock or ETF.

Aradhana Gupta Kejriwal is a portfolio manager for GV Financial Advisors, an Atlanta-based RIA managing over $800M in assets. She's co-chair of the investment committee and previously managed $2 billion in short-term debt in the Treasury Group at Home Depot.

Which single asset class are you most bullish (or bearish) about in the coming year?


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Consolidation in Precious Metals – Range-bound Gold-Silver Ratio

Posted: 06 Jan 2011 05:24 AM PST

 

The full version of our analysis (with comments particularly valuable for Precious Metals Traders) is available to our Subscribers.

Having dwelt a lot on the topic of the gold:silver ratio from a technical and quantitative standpoint in our earlier essays, it is about time we examined the ratio fundamentally. In the strictest sense of mean reversion, the ratio between gold and silver should follow a straight line over time. However, as observed in the previous article, the ratio not only has a wide range but also fluctuates between extremes. This means that the prices of gold and silver are perceived differently in different market conditions and a concept of mean reversion is not enough to interpret the gold:silver ratio.

In fact, the ratio reflects economic and political factors governing the markets fairly well. A study of the ratio, therefore, has to be a combination of the quantitative approach and a fundamental approach. In this essay we will travel through history and see how sensitive the ratio has been to external factors outside of pure supply and demand picture. We will also examine current fundamentals in the light of factors found to be instrumental in determining prices (and hence the ratio) in the past.

Historical Fluctuations in the Gold:Silver Ratio

Breaking down the ratio in the last ten years into distinct regimes, we can observe how fundamentals play a part in shaping regimes. The first regime is that of a steady outperformance of gold over silver from the start of 2000 to the middle of 2003. This despite gold reaching a 21 year low of about USD 250 per ounce in 2001!

From 1998 to about 2003, starting with the Asian and the Hedge Fund crises, the economic downturn of 2000, through the Y2K jolt and the Iraq war, investments poured into gold more than silver. As observed in any period of crisis, gold was deemed an important crisis commodity. As fear gripped the commodity markets, gold increased in value relative to silver – the gold-silver ratio increased from 40 in 1998 to close to 80 in 2003.

The rallies in gold in this era were a result of a combination of factors. China deregulated gold markets in the early 2000s that increased demand significantly. Additionally, the dotcom crash and the 9/11 terror attacks encouraged investments in this safe haven. Introduction of the euro also devalued the U.S. dollar in the international market helping gold more than silver perhaps.

The period from the middle of 2003 to the first quarter of 2004 witnessed a widespread correction in the ratio, with a pullback in gold prices and strengthening of silver. The equity market started to rally reflecting the end of a crisis period, as 9/11 drifted further back in the minds of investors – silver prices once again increased relative to gold. This is one of the many instances in history where a period of crisis is followed by more investments flowing into silver, leading to corrections in the gold:silver ratio.

From first quarter of 2004 to the end of 2005, the ratio bounced back and stabilized at a higher level. The year 2006 perhaps witnessed the most volatile fluctuations, with the ratio first going down, then recovering before going down again. The first half of the year saw widespread dumping of dollars. Italy dumped billions of dollars from its reserves and replaced it with the pound sterling. Russia and a number of smaller European nations also slashed dollar reserves considerably, creating uncertainties in the dollar market and making gold volatile.

After the volatile year for gold in 2006, gold witnessed a steady upsurge (in comparison with silver) in 2007. Oil producers in the Middle East announced major gold bullion purchases; China announced plans to increase gold bullion purchases with its excess cash reserves; Vietnam also opened its first gold exchange. A combination of these factors saw gold demand outpacing supply for the most part of the year, propelling prices north.

In 2008, the ratio corrected marginally from the 2007 highs. Not because gold demand was waning – in fact gold demand continued to surge on the inkling of a financial crisis in the upcoming months. However, the ratio corrected because silver started to outperform gold for once at the onset of what would be a deep global recession. The primary reason for silver's strong performance was a surge in investment demand of silver, both in the United States and Europe (where the impact of the recession was the biggest).

During the height of the recent economic crisis in late 2008, the gold:silver ratio peaked to its highest level in four years at 84.4. Just three months prior to this peak, the ratio was hovering around the 50 mark, the average for the early half of the decade. At this stage, the ratio reflected significantly overbought gold, as its safe haven properties pressed the yellow metal to outshine its industrious counterpart. A natural equilibrium began to re-emerge during 2009. The strong correlation between gold and silver helped silver to gain in tune with gains in gold. Despite corrections in the ratio in the first half of 2009, the ratio still appears to be at relatively high levels compared to historical averages. 

In the first three quarters of 2010, gold started to rise again over silver, emphasizing its evergreen investment characteristic. This time gold demand surged as a hedge against inflation – anticipated because of the monetary stimulus packages that had been implemented during the recession. The recessionary concerns had started to ease during this period, but uncertainty still loomed large about the nature of recovery. Silver could not gain from rebounding industrial activity because of this uncertainty. Large buying activities from China and India also held gold in good stead during this period.

In the rear half of 2010, we started observing sharp corrections in the ratio. Apparently, silver has started getting its due. The rebound in industrial activities has rubbed off on silver prices, while the gold markets have started to exhibit signs of short-term sluggishness. So where does the ratio move from here? Will 2011 be a sluggish year for gold while silver rides on the recovery wave to outperform gold? Or has the silver rally lost steam already?

While there is no questioning the long-term fundamentals of precious metals, especially gold, 2011 could be sluggish as gold may not be able to sustain its current pace of growth, say some in the industry. Read our articles The Economy is Still on Shaky Foundation and Gold's Gleam Will Not Fade Away Because of the Current Decline to comprehend the strength in gold fundamentals in the long term.

Silver's fundamentals are improving. With a majority of silver demand coming from industrial applications, and rising stock market (at least that is the case at the moment of writing this essay) so will demand, thus pushing silver prices higher. The big question is whether this recovery is already factored in the price and the recent rally in silver is over and done with for the medium-term.

Gold-Silver Ratio to Stabilize in the Medium-Term

Historically, it has been observed (we have dwelt on this in the first section of this essay) that gold exceptionally outperforms silver in any downturn. In case the downturn impacts industry, silver lags due to damp industrial demand, amplifying gold's performance. Other occasions such as the dot com crash (where silver's industrial demand remains unaffected) will also possibly witness gold outperforming silver, but less significantly as silver also meets requirements of a safe haven. Let's face it – at least now Investors believe that silver cannot beat gold in the safety that the latter provides. The dependence on industry adds further volatility to silver, unlike gold's almost unidirectional move.

Generally, after a crisis, silver tends to catch up with gold, bringing the ratio down again. The pent up momentum in silver caused by gold's wide upward fluctuation during the era of crisis takes effect now and silver tends to outperform gold. The economic crisis of 2008 was perhaps an exception to the rule.

Although signs of a recovery were apparent in early 2010, silver did not rebound immediately. Monetary stimulus, followed by possibility of inflation again drove gold to the fore.  Silver has begun to claw back and catch up with gold only in the past few months on the back of industry and momentum. And the momentum in silver prices has been quite dramatic!

As the global economy recovers and markets begin to even out, risk appetite will return. As the need for a safe-haven recedes, investments will begin to move away from gold into higher volatility (higher return) securities. This means that a lot of investments will move away from gold into silver in the precious metals space as well (silver is always a higher beta metal).  

If we learn our lessons from history, the fluctuations in silver prices should have legs for some more time because it has only started to emulate what gold did during the recession. However, the ratio has plunged quite sharply in the rear end of 2010 and is almost at ten year low levels. When held in the perspective of a typical rebound in silver post economic recovery, the current retracement of the ratio appears close to historical retracements. So, from a historical standpoint, silver's move might be complete and going forward, the ratio will stabilize for a bit before gold starts edging up again. This could be caused by a consolidation on the general stock market.

Fundamentally too, indications are of a range-bound ratio in 2011. The bull run in gold is already showing signs of fatigue. In 2011, gold is expected to gain at a slower pace supported by investment demand. Investors should remain cautious and wait for appropriate signals before another leg of the bull run resumes. Silver too will remain subdued, but at these elevated levels with good support from industrial and investment demand. As both legs of the ratio gain steadily, the ratio will remain largely range-bound, which could make pair-trading particularly profitable. Long-term predictions of the ratio are anybody's guess, however one might expect the ratio to move below the 20 level, as it was the case at the end of the previous bull market at the beginning of 80′s. As seen historically, the ratio is sensitive to market conditions and will generally fluctuate between peaks and troughs. Individual legs, gold and silver, will continue to gain though in the long-term (despite minor fluctuations in the medium-term).

To keep yourself informed about the nitty gritties of the precious metals market, I recommend you to sign up for our free mailing list. Sign up today and you'll also get free, 7-day access to the Premium Sections on the website, including valuable tools and charts dedicated to serious PM Investors and Speculators. Again, it's free and you may unsubscribe at any time.
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Mike Stall
Sunshine Profits Contributing Author
www.SunshineProfits.com

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2011: Year of the Yellow Brick Road

Posted: 06 Jan 2011 05:24 AM PST

Axel Merk submits:

The Wizard of Oz would be proud of our policy makers: perception may be reality when it comes to investor confidence, even if we live in a fairy tale. However, investors that can afford to build a yellow brick road paved with gold may outshine those who build theirs with magic. Let's enjoy the dream for a moment: the Federal Reserve has sprinkled money on the economy, Congress has kept taxes low and we see signs of a recovery. A recovery driven by consumers with more disposable income. Where do they get it from? The reduced payroll tax? Maybe, but how about all the money consumers have at their disposal now that they have stopped paying their mortgage? What a wonderful life this must be! Because the Fed doesn't quite believe in the recovery, we believe QE2 will run its course.

Fed Chairman Bernanke has repeatedly stated that one of the grave policy mistakes during the Great Depression was that monetary policy was tightened too early. He appears committed to not letting history repeat itself; investors may want to trust him on that, as well as his commitment to push inflation higher. Ultimately, the Fed would like to engineer higher home prices so that consumers are no longer "under water." The challenge the Fed has, of course, is that while it can create asset inflation, the Fed has a difficult time influencing which assets inflate. Having said that, the Fed has at least some success: easy money has pushed at least some companies' valuations higher, just look at Facebook, now valued at $50 billion, which may bode well for Palo Alto real estate. This is the Fed's contribution to the wealth gap: those with assets may do well under Bernanke's leadership, but don't expect a boom in underprivileged neighborhoods, unless someone convinces Facebook to relocate there.


Complete Story »

A Day in the Life of the National Debt

Posted: 06 Jan 2011 04:36 AM PST

As an example of the kind of sheer monetary insanity that is happening all around us and that is going to destroy the United States of America, and probably most of the world, too, the national debt of the United States of America hit a new, all-time record: An astonishing $14,025,215,218,708.52, which can be more conveniently referred to as $14.025 trillion, and which works out to a debt of $140,252.00 for every non-government worker in the Whole Freaking Country (WFC), the interest on which (at 5%) is $7,012.60 for each of those selfsame non-government workers. Per year!

And this $14,025,215,218,708.52, which is, again, a massive $14.025 trillion, was reached on the Very Last Day Of The Year (VLDOTY) of 2010, a foul feat of fiscal folly, a fact made all the worse by noting that this unholy indebtedness was reached on that Very Last Day Of The Year (VLDOTY) because the debt soared by a huge $154 billion on that Very Last Day Of The Year (VLDOTY)!

$154 billion in one day! In One Freaking Day (OFD)!!

Note the use of the double exclamation point to indicate emphasis, which is altogether appropriate because many other outrageous things happen in One Freaking Day (OFD), like how you got married One Freaking Day (OFD), and you took your stupid job One Freaking Day (OFD), and you agreed to attend the kid's horrible music recital that seemed to last an eternity but was, instead, just One Freaking Day (OFD).

But it is seldom on One Freaking Day (OFD) that the despicable federal government issues a massive $154 billion in new debt, which is so much money that it is more than $1,540 of new money for every non-government worker in the Whole Freaking Country (WFC)!

In One Freaking Day (OFD)!

I can see by looking at your stunned expression that you are as freaked out about this as I am, because this is a lot of money for workers in the non-government, profit-seeking part of the economy to shoulder.

But the biggest killer of the economy is the massive deadweight loss of local, state and federal government, which now accounts for half of all spending, supports roughly half of the population. And employing, as it does, 1-out-of-6 workers.

And let's not forget, as Martin Hutchinson, in his essay at PrudentBear.com, reminds us, "The nonprofit sector (including religious and cultural institutions) represents a sizeable portion of the US economy."

And by "sizable portion of the US economy", he means "According to the CRS study, nearly 10% of the US workforce works in the non-profit sector, with 7% employed by charities."

A tenth of the population does not work to make a profit at all! What kind of economic idiocy is that? Is this part of the reason that we have a trade deficit of over $600 billion a year?

And not only did non-profit employment increase by 16% between 1998 and 2005, but "Employment in the charitable sector is highest in the District of Columbia, with 16.3% of its workforce employed in that sector, then Rhode Island with 13.6%, then New York with 13.3%."

The interesting part is when he reports that this is actually, as we originally surmised, bad news, as it turns out that "charitable employment is strongly inversely correlated with economic growth," as "the jurisdictions that have shown the most robust economic growth in the last 30 years are those where charities are least active."

Why is this? He figures that the reason that a lot of charitable giving is correlated with low economic growth is that, "In the case of charities, resource allocation is made by people with a political agenda, seeking to maximize their resource collection from rich people with little knowledge of the problems the charity addresses, whose decision making is obfuscated by incessant misleading charity propaganda. Thus, charitable activity is even more economically inefficient than government, and excessive charitable activity holds back the local economy by diverting resources from the local private sector."

On the other hand, I say, with all due respect, that the reason that economic growth is low in those areas where there are many charities is because of an increase in the population of those coming to seek charity, bringing with them all their higher crime rate, lower business activity, and requiring increases in taxes to provide for them.

Either way, everywhere you look, you see Bad, Bad News (BBN), even in the charity business, and with 43 million Americans receiving food stamps already, with more and more applicants every day, which will be provided by more government deficit-spending more excess money created by the Federal Reserve expressly for the purpose, it doesn't take long before you realize the urgent need to frantically buy gold and silver, and keep on buying them for as long as the money holds out.

And the really nice thing about it is that it is so easy that people say, "Whee! This investing stuff is easy!"

The Mogambo Guru
for The Daily Reckoning

A Day in the Life of the National Debt 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."

SPDR Gold Shares ETF Holdings Lowest Since June

Posted: 06 Jan 2011 04:32 AM PST

Gold and Silvers Daily Review for January 6th, 2011

Posted: 06 Jan 2011 04:23 AM PST

When to invest in stocks

Posted: 06 Jan 2011 03:03 AM PST

Remember what happened during the last big gold bull market in the '70s? Gold lost 50% (from memory) of its value, in '74, before finally hitting its high in '80. Gold could drop down below $1,000.

Fewer than 1% of the population holds physical PMs

Posted: 06 Jan 2011 02:56 AM PST

Fewer than 1% of the population holds physical PMs (excluding random jewelery).

I've heard this "statistic" many times.

Can anybody point me to a source for this estimate?

Thanks!

Global Macro Notes: Whither Commodities?

Posted: 06 Jan 2011 02:32 AM PST

The market giveth, and the market taketh away.

In the final week of trading for 2010, gold and silver registered powerful "risk on" breakouts. Gold moved definitively to the upside from a short-term triangle pattern, and silver pushed above $30 per ounce.

Soon after, however, both of those moves were swiftly negated. Rather than displaying follow through, the yellow metal dropped sharply, leaving gold bugs to again ponder the possibility of a triple top. Silver, meanwhile, collected two black marks against it — a break of a long-term trendline and a failure to hold the psychological benchmark of $30 per ounce.

The Mercenary portfolios are now clear of precious metals related positions. Like the old E.F. Hutton commercials: When the market speaks, we listen…

Also instructive is the action in the $USD index and UUP, the dollar index bullish ETF.

December was mostly a continuation of the "dollar goes down forever" mentality, but since then the greenback's fortunes have tellingly reversed. UUP now threatens an upside breakout from a multi-month channel.

The $USD action is particularly noteworthy due to time of year. A friend and colleague of considerable experience recently forwarded some research, dating back to the 1970s, showing a remarkable tendency for the major currency pairs (and the $USD index) to book their highs or lows for the year in January. Over multiple decades this has happened 67% of the time.

In the Mercenary portfolios we are recently short the euro, as an expression of attractive chart patterns, ongoing sovereign debt woes, and renewed $USD strength.

Crude oil is another question mark, as the futures wrestle with the $90 per barrel level.

Related to crude, at moment the "risk on" surge in the first week of 2011 trading has negated any concerns over Chinese inflation woes. Meanwhile, a recent Bloomberg economist survey estimated Chinese growth at 9% in 2011, a bare scratch below 10%.

In response to that we cite James Montier, who observed economists are the one group whose future-predicting capabilities make fortune tellers look good, and further site former PBOC monetary policy expert Yu Yongding (via the FT):

"China's rapid growth has been achieved at an extremely high cost. Only future generations will know the true price," Mr Yu wrote in an opinion piece published in the state-controlled China Daily. "[China's] growth pattern has now almost exhausted its potential. So China has reached a crucial juncture: without painful structural adjustments the momentum of its economic growth could suddenly be lost."

In relation to energy, point being that crude oil is simultaneously a speculative football, a $USD "store of value" alternative, and a play on the bullish prospects for Asia (mainly China).

To a significant degree, as goes China, so goes oil. If China slows dramatically — or experiences inflationary bust — oil feels the fallout.

Also worth noting (via the FT):

"Oil prices are entering a dangerous zone for the global economy," said Fatih Birol, the IEA's chief economist. "The oil import bills are becoming a threat to the economic recovery. This is a wake-up call to the oil consuming countries and to the oil producers."

Oil prices have edged closer to $100 a barrel in recent weeks and Brent crude hit $95 a barrel for the first time in 27 months on Monday as the economic recovery has gathered pace.

Last but not least, some now rudely wonder whether commodities are simply in the midst of a giant bear market rally. The CRB index, as shown above, is within touching distance of a 50% retracement from the 2009 lows.

Commodities still in a secular bear market? If you are a true believer in emerging market growth, U.S. recovery, the corrosive power of the printing press, or any combination of the three, the idea sounds ludicrous (or even insane).

But from the extreme skeptic's perspective — if U.S. recovery is a paper-driven mirage, Chinese growth an infrastructure ponzi scheme, and the grand stimulus experiment merely a recipe for replicating Japan on a mass scale — then the idea doesn't seem so crazy. Increased potential for a strong $USD in 2011 (via the previously cited January effect) also augurs poorly for commodities.

We remain agnostic, sticking to our discipline of absolute longs and shorts in the context of a balanced book, leaning one way or the other as opportunity dictates.

As underscored in Twelve Major Risks for 2011, this highly uncertain environment calls for tactics, not heroics…

Jeff Clark – How High Will Gold Go in 2011?

Posted: 06 Jan 2011 01:45 AM PST

After stellar years for both gold and silver, what prices will precious metals hit in 2011? Here's an analysis based strictly on their price behavior in the current bull market.

First, take a look at the annual percentage gains that gold has registered since 2001 (based on London PM Fix closings):

Excluding 2001, the average gain is 20.4%. Tossing out the additional weak years of '04 and '08, the average advance is 24.8%.

So we can make some projections based on what it's done over the past 10 years. From the 12-31-10 closing price of $1,421.60, if gold matched…

The average rise this decade, the price would hit $1,711.60
The average rise excluding the three weak years = $1,774.15
Last year's gain = $1,858.03
The largest advance to date (2007) = $1,875.09

But what if global economic circumstances continue to deteriorate? What if worldwide price inflation kicks in? And what if government efforts at currency debasement get more abusive? If Doug Casey is right, a mania in all things gold lies ahead – what if that begins in 2011? Here's what price levels could be reached based on the following percentage gains.

35% = $1,919.16
40% = $1,990.24
45% = $2,061.32
50% = $2,132.40
1979's gain of 125.7% = $3,208.55

It thus seems reasonable to expect gold to surpass $1,800 this year, as well as reach a potentially higher level since the factors pushing on the price could become more pronounced.

Here's a look at silver:

As you can see, silver had its biggest advance in 2010. The average of the decade, again excluding 2001, was 27.5%. And also tossing out the '08 decline, the average gain is 34.3%. So, from the 12-31-10 closing price of $30.91, if silver matched…

The average rise this decade, the price would hit $39.41
The average gain excluding 2008 = $41.51
Last year's advance = $56.22
The 1979 gain of 267.5% = $113.59

So, $50 silver seems perfectly attainable this year. And that's without monetary conditions worsening.

It's titillating to ponder these advances for gold and silver, especially when you consider we might be getting close to the mania. And if we are, that should do wonderful things to our gold and silver stocks, too.

I would add one caution: the odds are high that there will be a significant correction before gold begins its march to these price levels. In every year but two ('02 and '06), gold fell below its prior-year close before heading higher. And here's something to watch for: in every year but one ('08), those lows occurred by May.

In other words, a buying opportunity may be dead ahead. And if you buy on the next correction, your gains on the year could be higher than the annual advance.

~Jeff Clark, Casey Research

CMI Gold's Haynes - No Gold Bubble

Posted: 06 Jan 2011 12:48 AM PST

HOUSTON -- Over the past couple days the "coverage" of gold and silver on televised financial media is a study in what we like to call "Now-Analytics." That is, of course, the "study" of what is happening now and then extrapolating that into the future while sounding authoritative. We wonder now if it helps to get air time if one thinks that gold and silver have been in a "bubble" and are willing to say so. As we are sure that most analysts do, we have looked into the idea that gold or silver are in a bubble. We don't have the time or the inclination to discuss it at length today, but our conclusion is that gold and silver are a very long way from being bubbly.

Das reale US-BIP liegt 30% unter den offiziellen Angaben

Posted: 06 Jan 2011 12:13 AM PST

- Auszug Empfehlungen GEAB N°47 (18. September 2010) -
Das reale US-BIP liegt 30% unter den offiziellen Angaben
Die Verarmung der USA ist ein langer Prozess, der schon vor beinahe 30 Jahren eingesetzt hat. Die Krise und ihre Auswirkungen wie der Rückgang der Gehälter und Kapitalerträge sowie die Reduzierung der Verbraucherkredite sind nichts weiter als die neueste, sich beschleunigende Etappe in der Erosion des Lebensstandards der US-Mittelschicht. In all diesen Jahren wurde dank billiger Kredite die Verarmung der Mittelschicht verdeckt; Einkommensrückgang wurde durch Verschuldung ausgeglichen. Als mit der Krise die billigen Kredite verschwanden, auf die die Wirtschaft des Landes angewiesen war, versuchten die US-Regierung, der Kongress und die Zentralbank sie durch eine gigantische öffentliche Verschuldung zu ersetzen. Aber wie man jeden Tag feststellen kann, wenn man die wirtschaftliche und soziale Entwicklung in den USA betrachtet, ist dieser Versuch aus den bereits in dieser Ausgabe des GEAB genannten Gründen gescheitert.

Aber dieser Versuch hat dennoch unmittelbare Auswirkungen auf das US-BIP, auch wenn die meisten Wirtschaftswissenschaftler und Experten sich weigern, dies zuzugeben. Denn wenn sie einräumen würden, dass es tatsächlich zu diesen Auswirkungen gekommen ist, käme es zu einem Sturm an den internationalen Finanzmärkten, gegen den die Griechenlandkrise nur ein laues Lüftchen gewesen wäre. Schon die Lüge der griechischen Regierung über den wahren Verschuldungsgrad (Schulden im Verhältnis zum BIP) führte zu einer Panik an den Finanzmärkten. Was würde also geschehen, wenn bekannt würde, dass das US-BIP um 30% unter den offiziellen Zahlen liegt und damit der Verschuldungsgrad im Jahr 2009 nicht bei 83% lag, wie von der Regierung angegeben, sondern bei 113% (1)? Wir gehen jedenfalls von diesen Zahlen aus und sind überzeugt, dass sich diese Wahrheit 2011 nicht mehr verschleiern lassen wird. Die Unterschiede ergeben sich ganz einfach aus der Tatsache, dass zwischen 2007 und 2009 die USA sich um weitere 4.000 Milliarden USD verschuldet haben, das BIP dadurch jedoch nur um 200 Milliarden Dollar in drei Jahren gesteigert werden konnte (2).

Das reale US-BIP liegt 30% unter den offiziellen Angaben
Aber diese zusätzliche Verschuldung der öffentlichen Hand ist nichts weiter als der Versuch, die wegen der Krise und des eingeschränkten Zugangs der US-Verbraucher zu Krediten weggebrochene Wirtschaftsleistung mit öffentlichen Geldern auszugleichen. Man könnte übrigens mit Fug und Recht argumentieren, dass schon seit mindestens einem oder zwei Jahrzehnten 30% des BIP reine Fiktion sind. Aber uns interessiert in diesem Zusammenhang nicht so sehr, was sich vor 20 Jahren ereignet hat, sondern vielmehr, was sich in der Zukunft ereignen wird. Und hier wird die den USA bevorstehende Sparpolitik diese Wirklichkeit ans Tageslicht bringen: Das US-BIP wird bei weitem überschätzt; es ist nur noch ein Schatten seiner selbst (3). Die Zahlen des US-BIP, die für Wirtschafts- und Finanzstatistiken benutzt werden, sind bei weitem überzogen. Deshalb weisen fast alle Wirtschaftsindizes und Statistiken enorme Abweichungen auf: Die Verschuldungsquote des Landes, sein Anteil an der Weltwirtschaft, das Verhältnis von Geldmengen zu BIP, der Wert des Dollars (der ja von dem Wert der US-Wirtschaft abhängig ist), all diese Angaben sind also bei weitem unzutreffend. Das vermag eventuell zu erklären, warum die US-Wirtschafts-und Geldpolitik so kläglich scheitert. Wenn man nicht weiß, wo man steht, kann man auch nicht in die richtige Richtung gehen (4).

----------
Noten:

(1) Angesichts dieser Zahlen ist es nicht verwunderlich, dass die globale Nachfrage nach Gold weiterhin so schnell steigt, nämlich in der zweiten Jahreshälfte 2010um 36%. Quelle: MarketWatch, 25/08/2010

(2) Quelle: US Government spendings.

(3) Anderes sehr bezeichnendes Beispiel: Die Transaktionen auf dem Gewerbeimmobilienmakrt sind zwischen 2007 und 2009 um 90% eingebrochen; sie fielen von 522 Milliarden USD auf 52 Milliarden USD. Quelle: MyBudget360, 02/08/2010

(4) Wenn man sich vergegenwärtigen möchte, wie der berühmte double-dip aussehen wird, in dem wir schon stecken, der sollte sich die Lektüre dieses Artikels von Douglas McIntye in 24/7WallSt vom 13/08/2010 nicht entgehen lassen.

Le PNB réel US est 30% inférieur aux chiffres officiels

Posted: 06 Jan 2011 12:02 AM PST

(Extrait GEAB N°47 (15 septembre 2010) -
Le PNB réel US est 30% inférieur aux chiffres officiels
Cette entrée des Etats-Unis dans la phase d'austérité a en fait commencé depuis au moins deux ans. En fait, la crise et ses conséquences en terme d'effondrement des revenus du travail et du capital ainsi que la restriction drastique du crédit à la consommation ne constituent qu'une étape dans le processus de paupérisation de la classe moyenne US entamée il y a près de trente ans. Pendant toute cette période, la frénésie de crédits faciles a eu pour objectif de masquer cette paupérisation en suppléant aux revenus manquants par un endettement sans fin. La crise ayant mis un coup d'arrêt brutal à ce processus, Washington (gouvernement, Congrès et Fed réunis) a tenté de pallier sa disparition par un endettement public gigantesque. Mais, comme on le constate chaque jour en regardant l'évolution économique et sociale du pays, cette tentative a échoué pour les raisons développées précédemment dans ce numéro du GEAB. Mais cette tentative a néanmoins des conséquences directes sur le PNB américain que la plupart des économistes et des experts refusent de reconnaître car elles constitueraient un choc d'une violence telle pour la stabilité économique et financière mondiale que la soi-disant « crise grecque » ressemblerait à un simple entraînement. Si le mensonge des autorités grecques sur le montant de la dette publique du pays, et donc sur le ratio dette/PNB a pu générer une panique mondiale, imaginez-vous une seconde ce que va provoquer (car pour notre équipe c'est une réalité qui va s'imposer au cours de l'année 2011) la découverte que le PNB des Etats-Unis est en fait de 30% inférieur aux chiffres officiels et que de ce fait le ratio dette publique/PNB US était de 113% en 2009 et non pas de 83% (1) ! La différence tient tout simplement au fait qu'entre 2007 et 2009, les Etats-Unis se sont endettés de plus de 4.000 milliards USD supplémentaires pour n'obtenir qu'une hausse d'un peu plus de 200 milliards USD en trois ans (2).

Le PNB réel US est 30% inférieur aux chiffres officiels
Mais qu'on ne s'y trompe pas, cet endettement public supplémentaire immense n'est qu'une tentative de substitution à un PNB « disparu » du fait de la crise et de la fin de l'endettement des consommateurs. On pourrait d'ailleurs défendre l'idée que cela fait au moins une ou deux décennies que ces 30% ne sont plus qu'une fiction de PNB. Mais notre problème n'est pas ce qui s'est passé il y a vingt ans, mais bien ce qui va se passer dans l'avenir. Et là où l'entrée dans la phase d'austérité de la crise systémique apporte un élément fondamentalement nouveau, c'est qu'elle crée un contexte général qui favorise le dévoilement de cette réalité : le PNB US n'est plus que l'ombre de lui-même (3) et sa valeur utilisée dans les statistiques économiques et financières est fortement surévaluée. Avec une telle surévaluation, ce sont donc pratiquement tous les indicateurs qui sont faux dans des proportions importantes. Le taux d'endettement du pays, sa part dans l'économie mondiale, les ratios monétaires, la valeur du Dollar (qui est appuyée sur la valeur de l'économie US), … tous ces chiffres sont donc largement erronés. Ceci peut d'ailleurs expliquer (comme pour le couple « inflation/déflation ») pourquoi les politiques économiques et monétaires mises en œuvre aux Etats-Unis échouent si lamentablement. Sans connaissance exacte du terrain, aucune stratégie ne peut aboutir au succès ; et en l'occurrence, la vision que donne la carte (indicateurs) du terrain est de plus en plus faussée (4).

---------
Notes :

(1) Dans ce contexte, il n'est pas surprenant que la demande mondiale d'or continue à croître très rapidement, à savoir de 36% au second semestre 2010. Source : MarketWatch, 25/08/2010

(2) Source : US Government spendings

(3) Autre exemple très parlant : les transactions en matière d'immobilier commercial se sont effondrées de 90% entre 2007 et 2009 passant de 522 à 52 milliards USD. Source : MyBudget360, 02/08/2010

(4) Pour avoir une idée de ce à quoi peut ressembler le fameux « double-dip » en cours, il est intéressant de lire cet article de Douglas McIntye dans 24/7WallSt du 13/08/2010

Unexplained "mass animal deaths" are popping up all over the world

Posted: 05 Jan 2011 11:56 PM PST

From LewRockwell.com:

More and more animals are found dead as the mysterious spate of mass bird and fish deaths has turned into a global phenomenon.

Experts were today carrying out tests on around 50 jackdaws found dead in a street in Falkoping, Sweden that appear to have suffered the same fate as thousands of their cousins who fell from the sky in separate incidents in the U.S.

Swedish experts have said the shock of fireworks being let off near the city, in the south-east of the country, and difficulty finding food may have led to the deaths of the jackdaws.

Many of the birds are believed to have died from stress or as a result of being run over by vehicles while disoriented.

And scientists have also been left baffled by at least...

Read full article...

More Cruxallaneous:

The U.S. is literally falling apart around us

Why most people will be destroyed by a dollar crisis

Top trend forecaster: Ten shocking predictions for 2011

The true US GDP is 30% lower than official figures

Posted: 05 Jan 2011 11:53 PM PST

- Excerpt GEAB N°47 (September 16, 2010) -
The true US GDP is 30% lower than official figures
The United States' entry into the austerity phase actually started at least two years ago. In fact, the crisis and its consequences in terms of a collapse in earnings and capital, as well as the drastic restriction of consumer credit, are only one step in the process of the impoverishment of the US middle classes which started nearly thirty years ago. Throughout the whole of this period, the frenzy of easy credit had the aim of hiding this impoverishment by compensating for a shortage of income with unlimited debt. The crisis having brought an abrupt end to this process, Washington (Government, Congress and the Fed together) has tried to make up for its disappearance by gigantic public debt. But, as we see on a daily basis, looking at the country's economic and social development, this attempt has failed for the reasons discussed earlier in this issue of the GEAB. However, this attempt has a direct impact on US GDP that most economists and experts refuse to acknowledge because they would be a shock of such violence for global economic and financial stability that the so-called « Greek crisis » would look like a simple training exercise. If the Greek authorities' lie over the amount of the country's debt and thus the debt/ GDP ratio was able to generate worldwide panic, imagine for one second the discovery that the GDP of the United States is actually 30% lower than the official figures and, therefore, the ratio of public debt/ US GDP in 2009 was 113% and not 83% (1) will cause (because for our team it is a reality that will become obvious during 2011). The difference is simply due to the fact that between 2007 and 2009, the United States took on board more than 4 trillion USD of extra debt for an increase of only just over 200 billion USD in three years (2).

The true US GDP is 30% lower than official figures
But make no mistake! This huge additional public debt is only an attempt to substitute to a « missing » GDP due to the crisis and the end of consumer debt. One could also defend the idea that that this 30% has been nothing more than a fiction of GDP for at least one or two decades. But our problem is not what happened twenty years ago, but what will happen in the future. And the entry into the austerity phase of the systemic crisis introduces a fundamentally new factor, which is that it creates a general context which favours the unveiling of this reality: that US GDP is nothing more than a shadow of its former self (3) and the figure used in economic and financial statistics is highly overvalued. With such an overvaluation, then almost all indicators are, to a large extent, false. The rate of the country's indebtedness, its share of the global economy, monetary ratios, the value of the Dollar (which is based on the size of the US economy) ... all these figures are largely incorrect. This may also explain (as for the « inflation / deflation » debate) why the economic and monetary policies implemented in the United States failed so miserably. Without any grassroots knowledge, no strategy can lead to success and, in this case, the view given by the map (indicators) is increasingly distorted (4).

-----------
Notes:

(1) In this context, it is not surprising that the global demand for gold continues to grow very rapidly, i.e. 36% in the second half of 2010. Source: MarketWatch, 08/25/2010

(2) Source: US Government spendings

(3) Another telling example: transactions in commercial real estate have plummeted 90% between 2007 and 2009 from 522 to 52 billion USD. Source: MyBudget360, 08/02/2010

(4) To get an idea of what the famous "double-dip" in progress may look like, it is interesting to read this article by Douglas McIntye in 24/7WallSt of 08/13/2010

Outrageous evidence of White House hypocrisy

Posted: 05 Jan 2011 11:47 PM PST

From Mish's Global Economic Trend Analysis:

President Obama is very concerned Republicans might "Play Chicken" with the debt ceiling. The president is so concerned, his aids are sending out dire warnings about dollar defaults and "catastrophic impacts" to the economy.

Please consider "Don't 'play chicken' with debt ceiling":

Some Republican lawmakers said Sunday they opposed raising the ceiling on the nation's debt without tackling government spending, and President Barack Obama's top economic adviser warned against "playing chicken" on the issue.

Austan Goolsbee, the chairman of the White House Council of Economic Advisers, said that refusing to raise the debt ceiling would essentially push the country into defaulting on its financial obligations for the first time in its history.

"The impact on the economy would be catastrophic," Goolsbee told "This Week" on ABC. "That would be a worse financial economic crisis than anything we saw in 2008."

Goolsbee added, "I don't see why anybody's talking about playing chicken with the debt ceiling."

Flashback March 20, 2006 – U.S. Senate Floor

Inquiring minds just may be wondering what the president's position was when he was a senator, just a few years back.

Please consider...

Read full article...

More government insanity:

This is why America is broke

Porter Stansberry: A major financial crisis has begun

The U.S. gov't is dumping money into some of the craziest and most frivolous things imaginable

Bill Gross: What investors should fear more than anything else right now

Posted: 05 Jan 2011 11:27 PM PST

From Bloomberg:

Pacific Investment Management Co.'s Bill Gross said investors should favor emerging market corporate and sovereign debt as "mindless" U.S. deficit spending may result in higher inflation, a weaker dollar, and the eventual loss of America's AAA credit rating.

Buying debt in emerging market countries with higher real interest rates, wider credit spreads, and strong balance sheets will offer more return as well as protection from dollar depreciation as U.S policy makers run up record deficits at the expense of economic growth, Gross, the manager of the world's biggest bond fund, wrote in his monthly investment outlook.

"The problem is that politicians and citizens alike have no clear vision of the costs of a seemingly perpetual trillion dollar annual deficit," Gross wrote in a note on Pimco's website today. "As long as the stock market pulsates upward and job growth continues, there is an abiding conviction that all is well and that 'old normal' norms have returned. Not likely. There will be pain aplenty."

The U.S. deficit was $150.4 billion in November, exceeding the median estimate of economists surveyed by Bloomberg News, compared with $120.3 billion in November 2009, according to a Treasury Department budget statement released last month.

The extension of tax cuts that President Barack Obama signed into law will expand the federal budget deficit to $1.34 trillion for fiscal 2011, Credit Suisse Group AG strategists estimated on Dec. 7. Obama announced a day earlier an agreement with congressional Republicans to extend tax cuts enacted under his predecessor, George W. Bush.

'Fear the Consequences'

Moody's Investors Service Inc. said on Dec. 13 that Obama's agreement to extend tax cuts raises the chance of a negative outlook for the U.S.'s Aaa credit rating unless offsetting measures are enacted.

"All investors should fear the consequences of mindless U.S. deficit spending." wrote Gross, a founder and co-chief investment officer at Pimco. Like a female mantis who eats the head of her mate while reproducing, policy makers are "munching on the theoretical heads of future generations, while paying no mind to the wretches that will eventually be called upon to pay the bills," he wrote.

Congress should raise the debt ceiling, or the legal limit on U.S. borrowing, before it reaches capacity in the next few months to avoid threatening the U.S. credit rating, Gross said in an interview today on CNBC. After candidates supported by anti-deficit Tea Party activists were elected on pledges to rein in spending, some lawmakers have said they would demand budget cuts in exchange for voting to raise the debt ceiling.

Yields Decline

Stimulus measures that have been designed to maintain current consumption instead of working to make America a more competitive nation in the long run will be a drag on real income growth as reflationary policies set in, Gross wrote.

In December, an 18-member debt commission convened by the Obama administration failed to produce the votes needed to approve a $3.8 trillion budget-cutting plan projected to balance the government's books by 2035.

Yields on U.S. government debt fell in 2010 as the 9.8 percent unemployment rate, record low inflation, and Europe's sovereign-debt crisis stoked demand for safety. Bonds returned 5.9 percent in 2010 after losing 3.7 percent in 2009, according to Bank of America Merrill Lynch Indexes even as the government completed $2.2 trillion of note and bond auctions in 2010, surpassing the $2.1 trillion record set in the prior year. IntercontinentalExchange Inc.'s Dollar Index gained 1.5 percent.

'Lose Their heads'

Bond investors will suffer once general prices start to rise, Gross wrote. He declined to be interviewed today.

"The American answer to a bulging waistline is always 'mañana'" Gross wrote. "Eventually, as reflationary policies take hold, long-term bondholders lose their heads (and a portion of their principal as well), as yields rise to reflect higher future inflation."

Consumer prices excluding food and energy rose 0.8 percent in November from a year earlier after an advance of 0.6 percent in the prior month, the smallest gain in year-over-year data going back to 1958, the Labor Department reported Dec. 15.

Traders are adding to bets that inflation will pick up. The difference between yields on 10-year U.S. notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the securities known as the break-even rate, has advanced to 2.38 percentage points, up from the 2010 low of 1.47 in August. The five-year average is 2.08 percentage points.

Growth Forecast

Pimco raised its forecast for U.S. growth last month with the Obama tax plan allowing policy makers to pump a "massive amount" of stimulus into the economy. The accord also calls for extending unemployment insurance for the long-term jobless and cutting the payroll tax by $120 billion for one year.

The economy is likely to grow 3 percent to 3.5 percent in the fourth quarter from the same period of 2010, Pimco Chief Executive Officer Mohamed El-Erian said Dec. 9. That compares with Newport Beach, California-based Pimco's previous estimate for 2 percent to 2.5 percent growth, and the 2.2 percent gain forecast by the International Monetary Fund.

The firm has championed the idea of the new normal, in which investors will receive lower-than-historically average returns as global growth slows and the influence of the U.S. is diminished.

The $250 billion Total Return Fund managed by Gross posted an 8.74 percent gain in the past year, beating 75 percent of its peers, according to data compiled by Bloomberg. The one-month performance is a loss of 0.04 percent, beating 56 percent of competitors. Pimco is a unit of Munich-based insurer Allianz SE.

To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net.

To contact the editor responsible for this story: David Liedtka at dliedtka@bloomberg.net.

More from Bill Gross:

Bond king Bill Gross loves these emerging markets

Bond King Bill Gross: U.S. dollar set to get smashed

Bond WARNING: Pimco's Bill Gross changes rules, begins buying stocks

Sprott fund found it hard to get silver, Embry tells King World News

Posted: 05 Jan 2011 11:00 PM PST

Gold Standard Coming...Fed’s Hoenig Correct: Jim Rickards

Posted: 05 Jan 2011 08:36 PM PST

Fed's Hoenig says gold standard "legitimate" system. Sprott fund found it hard to get silver. Gold Over $2,000, Silver Above $50 in 2011 say John Embry. Gold, Silver prices to soar in 2011: Marc Faber...and much, much more.

¤ Yesterday in Gold and Silver

The gold price didn't do a thing during Far East trading on Wednesday...and also opened quietly in London.  However, starting around 10:00 a.m. local time, the gold price developed a slightly negative bias...and this trend continued until exactly 9:01 a.m. in New York.  Then the bottom fell out of the price, with the low of the day [$1,362.90 spot] coming about fourty-five minutes later...which was probably an early London p.m. gold fix.  From that low, gold gained back all of its New York losses by 12:45 p.m...and then basically traded sideways for the rest of the session.  The high of the day was around $1,384 spot during early trading in the Far East.

Of course the real pounding came in the silver market.  The silver price was on a slightly slippery slope right from the open in Far East trading...and the decline steepened a bit starting at the same time as gold...10:00 a.m. in London.  Silver sold off a quick 20 cents starting at the same 9:01 a.m. New York time as gold...and then JPMorgan et al pulled their bids around 9:27 a.m. Eastern... and silver was down about 70 cents in ten minutes to its low of the day... which Kitco reported as $28.55 spot.  Nothing free-market about that price decline.  A bit over three hours later, just like gold, silver hit its New York high [$29.44 spot] before selling off a hair into the close at 5:15 p.m. Eastern time.

Volumes in both metals were very big again on Wednesday...but not quite as large as those on Tuesday...the first day that 'da boyz' really pulled the trigger.

The world's reserve currency gained about 20 basis points during the first twelve hours of trading on Wednesday...and then added another 65 basis points between 5:45 a.m. and about 9:30 a.m. Eastern time.  None of this dollar action had a thing to do with the price declines in silver and gold in New York yesterday morning.

  

The share price action pretty much followed the gold price action.  The stocks gapped down at the open...and the lows were in within the first half hour of trading yesterday morning.  The HUI reached its high by around 11:30 a.m. even though the gold price moved higher during the next hour of trading..and then declined gently into the close...but well off its lows of the day, finishing down 1.28%.

Considering the pounding that the gold price has taken during the last couple of days, this sell-off in the shares has been very muted.  However, the silver stocks...for the most part, and not surprisingly...have been hit pretty hard.  But there were lots of stocks with green arrows yesterday, regardless of 'all of the above'.

  

The CME Daily Delivery report showed that 60 gold and 8 silver contracts were posted for delivery on Friday.  All the action, such as it was, occurred between JPMorgan and the Bank of Nova Scotia...and the link to that, is here.

There were declines in both GLD and SLV yesterday.  The GLD ETF showed a withdrawal of 121,869 ounces...and the SLV ETF had a smallish drawdown of 141,030 troy ounces.

The U.S. Mint had a sales report.  They added another 5,000 ounces of gold eagles, along with 389,000 silver eagles to their January sales totals.  So far in January, the mint has sold 14,000 ounces of gold eagles... and 2,085,000 silver eagles.

There was a lot of activity over at the Comex-approved depositories on Tuesday...and there was movement in all warehouses.  However, the changes were all small...and by the time all was said and done, they had added 183,332 ounces of silver to their total inventories.  The link to the 'action' is here.

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¤ Critical Reads

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World Food Prices Jump to Record on Sugar, Oilseeds

At the moment, I have thirteen stories for your reading pleasure...and that's after a merciless edit.  You can pick and chose from these...as I've already cut it back from what I call the 'trivial many', to the 'vital few'.

The first is a Bloomberg offering courtesy of reader Scott Pluschau.  The headline reads "World Food Prices Jump to Record on Sugar, Oilseeds".  An index of 55 food commodities tracked by the Food and Agriculture Organization gained for a sixth month to 214.7 points, above the previous all-time high of 213.5 in June 2008.  I consider this a harbinger of things to come... and the story is well worth your time.  The link is here.

View full GSD edition

Index of Commodity Prices by the Food and Agriculture Organization

Nick Laird of sharelynx.com fame then showed up out of the blue about eighteen hours after Scott sent me that story...with the very Index of Commodity Prices by the Food and Agriculture Organization that was mentioned in the above story...and here it is.

View full GSD edition

Brazil pledges to stop US 'melting the dollar'

The next item is from yesterday's edition of The Telegraph...and I just stole it from a GATA release.  It's a story posted from Sao Paulo...and it's headlined Brazil pledges to stop US 'melting the dollar'.  The headline pretty much says it all... and the link to the whole story is here.

View full GSD edition

Treasuries Gain Before Fed Buys; Yields Approach Two-Week Low

Well, Q.E. 2 is underway in earnest...and Brazil [plus other countries] will have their hands full...as this Bloomberg story [courtesy of reader Joseph Weiler] attests to.  The headline reads "Treasuries Gain Before Fed Buys; Yields Approach Two-Week Low".  Treasuries rose as the Federal Reserve prepared to buy long-term debt today after saying improvements in the economy fell short of what's needed to scale back its bond-purchase program.  The printing presses, or their electronic equivalent, are obviously running white hot.  The link is here.

View full GSD edition

World Bank taps offshore yuan bond market for first time

Here's Scott Pluschau's second offering to today's column.  It's a Reuters piece posted over at the news.yahoo.com website.  The headline reads "World Bank taps offshore yuan bond market for first time".   The World Bank issued its first yuan-denominated bond, raising $76 million and trying to promote the use of the Chinese currency in international markets at a time when China's stake in the institution is about to increase.  The link to the story is here.

View full GSD edition

Halla Tomasdottir: A feminine response to Iceland's financial crash

Here's a very interesting 10-minute speech given by Icelandic businesswoman Halla Tomasdottir.  Halla managed to take her company through the eye of the financial storm in Iceland by applying 5 traditionally "feminine" values to financial services. At TEDWomen.com, she talks about these values and the importance of balance.  Halla, the co-founder of Audur Capital financial services, has been instrumental in rebuilding Iceland's economy since its collapse in 2008. Her passion is releasing the incredible economic potential of women's ways of doing business. This is wonderful [and fun] to listen to...and I urge you to give it the time it deserves.  It's entitled "Halla Tomasdottir: A feminine response to Iceland's financial crash".  I thank reader Roy Stephens for sharing it with us...and the link is here.

View full GSD edition

Overheating East to falter before the bankrupt West recovers

Roy Stephens sent me the next story a couple of days ago...and, for whatever reason, I found it in my 'junk mail' folder...and rescued it.  It's a couple of days old, but the year is still young.  Here's Ambrose Evans-Pritchard over at The Telegraph talking about what might occur in 2011 on a global basis.  The headline reads "Overheating East to falter before the bankrupt West recovers".  From the overheating East to a troubled West, Ambrose Evans-Pritchard offers his predictions on the global economy next year.  Ambrose crams a lot into this column...so try and keep up.  The link to this very worthwhile read is here.

View full GSD edition

2011: The Year When Money Starts to Die

The remaining six offerings today are all precious metals-related...and every one of them is worth your time.  The first story is one that I lifted from a GATA release...along with Chris Powell's wonderful introduction.  Economist and former banker Alasdair Macleod wrote yesterday that 2011 will be the year when money starts to die; as government bond prices and currency values fall and the precious metals break out from the government price suppression schemes. Macleod's commentary is headlined "2011: The Year When Money Starts to Die" and you can find it posted at the financeandeconomics.org website...and the link is here.

View full GSD edition

Halla Tomasdottir: A feminine response to Iceland's financial crash

Posted: 05 Jan 2011 08:36 PM PST

Link: 
Halla Tomasdottir: A feminine response to Iceland's financial crash
Image: 

Here's a very interesting 10-minute speech given by Icelandic businesswoman Halla Tomasdottir.  Halla managed to take her company through the eye of the financial storm in Iceland by applying 5 traditionally "feminine" values to financial services. At TEDWomen.com, she talks about these values and the importance of balance.  Halla, the co-founder of Audur Capital financial services, has been instrumental in rebuilding Iceland's economy since its collapse in 2008.

read more

Fed's Hoenig says gold standard "legitimate" system

Posted: 05 Jan 2011 08:36 PM PST

Link: 
Fed's Hoenig says gold standard "legitimate" system
Image: 

This next Reuters piece was a huge surprise to me when I read it.  It was filed from Kansas City, Missouri yesterday...and bears the incredible headline "Fed's Hoenig says gold standard "legitimate" system".  Thomas Hoenig has a keen grasp of the obvious...but the fact that he said it at all is amazing.  A gold standard that forces countries to back their currency reserves with bullion is a "legitimate" monetary system, though it would not prevent financial crises, Kansas City Federal Reserve President Thomas Hoenig said on Wednesday. 

read more

Gold Over $2,000, Silver Above $50 in 2011

Posted: 05 Jan 2011 08:36 PM PST

Link: 
Gold Over $2,000, Silver Above $50 in 2011
Image: 

Interviewed yesterday by Eric King of King World News, Sprott Asset Management's chief investment strategist, John Embry, made eye-popping price predictions for gold and silver in 2011...but may have been more interesting for his remarks about the difficulty encountered by the Sprott Physical Silver Trust in getting hold of real metal. Excerpts from the interview are headlined "Gold Over $2,000, Silver Above $50 in 2011" and the link is here.  I thank Chris Powell for the preamble.

Jim Rickards - Gold Standard Coming, Fed’s Hoenig Correct

Posted: 05 Jan 2011 08:36 PM PST

Link: 
Jim Rickards - Gold Standard Coming, Fed's Hoenig Correct
Image: 

Hard on the heels of the above Reuters story, is this King World News blog featuring Jim Rickards.  The headline is no surprise "Jim Rickards - Gold Standard Coming, Fed's Hoenig Correct".  Needless to say, this short blog demands your undivided attention...and the link is here.

Brazil pledges to stop US 'melting the dollar'

Posted: 05 Jan 2011 08:36 PM PST

Link: 
Brazil pledges to stop US 'melting the dollar'
Image: 

The next item is from yesterday's edition of The Telegraph...and I just stole it from a GATA release.  It's a story posted from Sao Paulo...and it's headlined Brazil pledges to stop US 'melting the dollar'.  The headline pretty much says it all... and the link to the whole story is here.

Gold, Silver, Mining Stocks and Fiat Money

Posted: 05 Jan 2011 07:10 PM PST

I'm getting a lot of fear-based inquiry about the price action in the precious metals sector this week. And for sure, both the financial bubble media and a lot of blogosphere are helping to fuel this fear. So I wanted to comment on the action.

To begin with, the BEST contrarian indicator out there – Dennis Gartman – confidently announced that he was contemplating shorting SLV. That's the single best indication that this correction may be closer to its end than its start.

Before I make case that this correction could end soon, let me just remind everyone that before the Central Banks ran out of gold to unload in order to manipulate the market, 200 day moving average (dma) corrections in gold,silver,HUI/XAU were not uncommon, especially after a big bull run like we have had since August. We could indeed be in the midst of one of those corrections, although that is not my view (we did set up our fund defensively during the last 2 weeks of December). I'm just saying that this is a volatile, highly manipulated market sector and, from a law of probability standpoint, the market is overdue for some downside volatility.

Having said that, the HUI has corrected down to its 50 dma and I believe that it's likely to hold there. But don't be surprised if we see some days with wild volatility and I've lived through periods where silver and the HUI blow through their 200 dma's to the downside and it feels like a market collapse.

Aside from the Gartman indicator, the physical demand from India, China and Japan on this price correction has accelerated. Historically, the relatively lower physical demand component made Comex paper-induced corrections a lot more savage. But now Central Banks globally have become very large net buyers of gold and the populations in these countries have also stepped up their accumulation, commensurate with their growing level of wealth. Here are some quotes from JB's Gold-jottings report, which can be accessed at www.lemetropolecafe.com: UBS reports "…demand really picked up in the $1380-1390 area. Our physical sales to India yesterday were the highest in 12 months – from a time when gold was trading around $1100;" Reuters adds confirmation: "There is renewed enthusiasm in market after markets crashed by $40 yesterday, I booked deals for 200 kgs from yesterday evening from $1,417 and below," said a dealer with a state-run bank in Mumbai."

Another interesting data point I picked up on this morning is that yesterday's Comex open interest in gold/silver actually increased. This is a startling contradiction to the usual substantial decline in o/i on big down days. Given that both today and yesterday paper gold/silver went off a cliff exactly on the Comex open, the bullion banks are clearly aggressively attempting a COT open interest liquidation, which historically would take the market down 10-20% on average. But yesterday's o/i report suggests that much stronger hands have moved into the long side of the Comex paper market and are not so easily stopped out of their positions.

Again, I am not willing to say at this point that this price correction has run its course. However we have started to shift our fund into a more neutral posture with regard to our expectations. To be sure, historically these price corrections have been a lot more severe in depth and duration. But, for now, I am leaning toward a view that we are closer to the end of this pullback than historical norms would suggest. Thanks Dennis!

As for the "Fiat Money" part of my title, once again Alisdair Macleod has hit a home run with an extraordinarily well-written essay on the death of fiat money. Here's a snippet:

This is why we might call 2011 the year money starts to die. The central banks are beginning to lose control over bubbles one and two, and also bullion. The destruction of private sector savings has coincided with expanding budget deficits so the expansion of the money bubble will have to continue to contain the situation, because there is no alternative. (emphasis is mine)

And here's the link: Must Read

Post Source: Gold, Silver, Mining Stocks and Fiat Money

Utah going gold?

Posted: 05 Jan 2011 07:00 PM PST

Gold & Silver Premium Vastly Outperforms with 86.5% Return in 2010

Posted: 05 Jan 2011 06:23 PM PST


Gold was all the rage in 2010. However, Wall St. Cheat Sheet's Gold & Silver expert Jordan Roy-Byrne CMT vastly outperformed sector benchmarks with his acclaimed Gold & Silver Premium Newsletter.

The GSL Portfolio, a diversified portfolio of junior gold and silver companies, finished 2010 up 86.5%. As you can see, the GSL Portfolio did far better than the entire precious metals sector:

How does Jordan do it?

Obviously, it helps to ride the trends, but dealing in high potential resource stocks carries more risk. The following helps us mitigate risks while increasing our chances of finding big winners:

1. Buy Value

We look for companies that, based on their price today, are trading at a discount now or bigger discount 12 months from today. The takeover game is a huge part of the resource business. Quality undervalued companies will not remain so for long.

2. Don't Chase

Gold and resource stocks can rise substantially in short periods of time. However, they can often fall 25-40% very quickly. We reduce risk by never chasing a company whose share price has appreciated tremendously in recent months. Hence, we try to find stocks that are less vulnerable to a sudden downturn.

3. Fundamental Catalyst

Undervalued resource companies need a catalyst to reach their full value. This can include going into production or announcing new resource estimates. We always evaluate what news is on the horizon and the potential impact on the share price.

4. Technical Catalyst

Resource stocks will typically trade in either an impulsive manner or a long consolidation. We seek to find shares that have very recently broken out from long consolidations or that are trading within a consolidation and have a chance to breakout within weeks.

A Note From Jordan:

I'd like to thank our subscribers for their business and putting their faith in our service. We only have two goals. The first is to make you money in a reasonably prudent and safe manner. The second goal is to provide you an excellent service in advising and covering the Gold and Silver sectors. We know there are many services out there and we thank you for choosing us.

For a quick overview of our service, you can watch the video below. To signup, click here.


Cheers to a successful 2011!

How High Will Gold Go in 2011?

Posted: 05 Jan 2011 05:45 PM PST

Gold & Silver Reverse Last Weeks Gains, "Slip Below"18-Month Trendline

Posted: 05 Jan 2011 04:33 PM PST

Bullion Vault

A decade of Gains for Gold and Silver

Posted: 05 Jan 2011 04:00 PM PST

Iacono Research

The Grand Angus Index

Posted: 05 Jan 2011 03:30 PM PST

--Uh oh. The price of your Grand Angus meal at Macdonald's could be going up. It used to be that "The Big Mac Index" published by The Economist magazine measured currencies on a purchasing power parity basis. The more expensive the Big Mac, the lower your purchasing power. But when all paper money is declining in value relative to real things, the Big Mac Index isn't as useful.

--In a world of competitive currency devaluations, we propose the Grand Angus Index, in which food increases in value relative to paper money are measured. According to today's Wall Street Journal, "The United Nations Food and Agriculture Organization's monthly food price index rose for the sixth consecutive month to 214.7, topping the previous peak, 213.5, reached in June 2008." The U.S. dollar is also going down, in food terms.

--Food prices last spiked like this in 2008. That's when the subprime compost really hit the fan in the financial world. At that time, it was a combination of bad harvests, bad weather, bad trade policy (export quotas) and bad monetary policy that drove the move. And the move drove people in the developing world - where food is a large part of what you spend your money on - into the streets with anger and, presumably, hunger.

--Food prices matter because they represent a kind of social limit on loose monetary policy. If low interest rates and money printing drive food prices up for people, that's the bad kind of inflation. The good kind of inflation - a rising stock market and rising house prices - doesn't make people angry or hungry. It appears to make them rich.

--But rising food and fuel prices are warning signs. Of what? Of the bear market in nearly all fiat money globally, not just the U.S. dollar. How do we know this? The chart below.

S&P GSCI Agricultural Index Spot Price
Click here to enlarge

--This is an expanded version of a chart we showed at the Gold Symposium in Sydney in November last year. And you'll see that a green line has been added. That's the U.S. dollar index. The black line is the Goldman Sachs Agricultural Index (spot prices). What does it tell you?

--Even after the bear market in stocks began in late 1999, the U.S. dollar stayed strong. It took two solid years of falling stock prices to reverse at least a little of the momentum from a 20-year bull market. But when the dollar fell, it fell hard.

--What's interesting is that even though many major crops like wheat and corn and sugar and soybeans are priced in U.S. dollars, dollar weakness did not lead to surging food prices globally. In wasn't until late 2007, in fact, that food prices (measure by the GSCI) really want stratospheric.

--Since then, you can see a pretty compelling correlation between dollar weakness and food strength. But the perplexing aspect of the chart is that the recent rally in the dollar index has been met by a new high in the Goldman Ag index. Food hasn't fallen on dollar strength. It's gone higher. Why?

--The dollar index measures the greenback versus other currencies. The green line tells you relative to other currencies, the dollar is trading a bit stronger now than it was in November (the Aussie dollar excepted). But here's the important point: the dollar strength against other currencies has masked the decline of nearly all paper currencies against real goods like food.

--If we're in a global bear market for fiat money - and not just a bear market but a kind of endgame for this kind of money - then real goods will continue to climb in value against government money, even if the U.S. dollar exhibits periodic strength relative to the Euro, the British Pound, or even commodity currencies like the Australian, New Zealand, and Canadian dollars.

--Is there an investment angle here? Well, even though they fell again yesterday, gold and silver are still handy tangible assets to own if we are indeed in a secular bear market for paper money. Lower prices are chances to lower your average purchase price and add to your position. This is a kind of "big picture" currency trade (paper for metal).

--But what about food? Well, if the food story is not really a story about shortages and droughts, and instead it's a story about a global currency crisis, the investment angle is not as clear. You could keep it simple and invest, when possible, in arable land. In a world with six billion people and counting, food seems like it would a long-term winner.

--Yet as we've seen here in Australia with Timbercorp, straight-forward investments that correlate to higher food prices are few and far between. The idea seems simple. But if the investment vehicle isn't properly structured, you can lose a lot of money. And even more straightforward angles like fertiliser and pesticides have been less than stellar over the last three years.

--The safest bet? Stock up on canned goods! And sugar and salt, which as you may know has been used as money in the past (a medium of exchange). Just keep it dry!

--Of course that recommendation that you exchange paper things for real things is part of the rough plan we have for 2011 to "definancialise" life. What it really means is to place reliance and confidence in the systems and axioms of wealth that have more or less worked for the adult life of the Baby Boomers.

--Modern portfolio theory...the efficient market theory....the stock market as savings account...the idea that over 20% of a nation's population can spend a quarter of its adult life not producing anything...these are all unexamined assumptions about modern life that will turn out to be bogus in the next years.

--Tomorrow, we'll have a closer look at what 'definancialisation' means to Aussie banks. If they're required to keep more of their balance sheet in high quality, liquid assets like, ahem, government bonds, what will it mean to their ability to expanding their balance sheet with new loans? If loan growth declines as capital requirements kick in, what will that mean to bank shares and to the economy?

--It's quite a bit to ponder. We'll go stock up on some calories and protein and think about it...before the Grand Angus meal gets more expensive.

Dan Denning
for The Daily Reckoning Australia

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Why Gold Still Has a Long Way to Run

Posted: 05 Jan 2011 03:24 PM PST

The supply of paper currencies is infinite; the supply of gold is finite. This striking contrast provides an excellent reason to exchange the former for the latter.

The gold supply is limited...very limited. According to one estimate, all the above-ground gold in the world totals between 120,000 and 140,000 metric tons. Let's split the difference and call it 130,000 metric tons (about 4.2 billion troy ounces). If you brought it all together and made it into a gigantic cube, it would measure about 19 meters along each side - about three meters short of the length of a tennis court.

Furthermore, about 20% to 25% of all the gold is stored in the world's central banks as country reserves. So the total amount of gold in private hands is enough for just 14 grams for each living person - that's less than half the quantity of a standard one-ounce coin like a US Gold Eagle or a South African Krugerrand.

At present, only about 2.25% of the world's total wealth - or 4.5% of world's financial wealth - is allocated to gold, including jewelry. But resurgent inflation could raise that percentage dramatically, while raising the gold price dramatically in the process.

To gain perspective, let's examine a brief history of the gold price relative to US inflation. The gold price peaked in January 1980 at $850/oz. But this peak was very brief. Gold jumped 29% alone in the run towards $660. Probably a better reference point for the market top is the average price during 1980 as a whole. This was $615/oz. Since then, the gold price has increased only 125%.

Over the same timespan, however, the government's most widely quoted inflation gauge, the Consumer Price Index (CPI), has increased 185%. Therefore, if the gold price had increased as much as the CPI, it would be selling for $1,753/oz today, not $1,390/oz. But the official inflation figures might not be the real story. Using alternative inflation figures calculated by ShadowStats.com, consumer prices have soared an astounding 789% since 1980, which means that the inflation- adjusted gold price would be $5,467/oz.

Gold Price vs. CPI Over the Last 30 Years

Interestingly, if we look at the market bottoms for gold - 1970 and 2001 - instead of the market tops, the ShadowStats data seem to provide a much more accurate inflation gauge than the CPI. For example, in January 1970 - before gold's 10-year bull run - the price of gold was just $35/oz. Thirty-one years later - after soaring to more than $800 an ounce in 1980 - the big bear market in gold bottomed out at $256/oz. And the average price for 2001 was $271/oz.

Therefore, during this 31-year period - through gold's full bull and bear market cycle - the gold price advanced 674%. Over the same timeframe, the ShadowStats inflation measure advanced a nearly identical 688%. By contrast, the CPI increased only 370% during this period. In other words, the cumulative CPI readings from 1970 to 2001 failed to account for all the inflation indicated by the rising gold price. The ShadowStats figures, on the other hand, were pretty much bang on target.

I'm staying conservative, and there's nothing to suggest that just because using the ShadowStats inflation worked for the bear market lows it will work for the bull market highs. But if the ShadowStats figures above are a guide, then maybe they point to a price north of $5,000/oz for gold - or even $7,000 for a short time.

I've just thrown a lot of numbers at you. But the point is this: gold looks like it has plenty of upside. But let's be really clear about one thing. I'm not making a hard prediction or setting a price target here. These figures just provide reference points. We also need to watch out for gold "going mainstream" - when references make their way into TV programs, when taxi drivers start talking to you about gold and when your mother calls to ask how to buy an ounce of the stuff.

I can easily see gold getting into the $2,000/oz to $3,000/oz range in the next few years - maybe higher. And there's a very real possibility that we'll have a short-term spike - a genuine investment bubble - that takes us into the $5,000/oz to $8,000/oz.

None of this is certain. And it most likely won't happen smoothly. There could even be big corrections along the way - like between December 1974 and August 1976 when gold fell 47% before powering ahead again. But I hope I've shown you that there are good reasons to think that gold still has plenty of room on the upside.

Conclusion: If you own plenty of gold already, then hang on for the ride. If not, buy more on the dips.

Regards,

Rob Marstrand,
for The Daily Reckoning Australia

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What to Believe About Gold, Stocks and Bonds in 2011

Posted: 05 Jan 2011 03:08 PM PST

We've come up to Brooklyn to help our son, Jules, move into his new digs. (More below...)

Yesterday, we promised to give you a "Prediction-Plus" about the stock market. You remember what a "Prediction-Plus" is, don't you? It's better than a prediction. It's what you should believe...even if it turns out to be wrong.

What should you believe about bonds? They're going down. They're a "suicidal" investment, says our old friend, Marc Faber.

What should you believe about gold? It's going up. Yes, we know...it might go down. Yesterday, gold dropped $44 dollars. Whee! We've been warning you for months that gold could correct. No bull market goes up in a straight line. And gold has already attracted too many speculators who don't really know what they are doing.

Remember what happened during the last big gold bull market in the '70s? Gold lost 50% (from memory) of its value, in '74, before finally hitting its high in '80. Gold could drop down below $1,000.

We wish it would. So we could buy more!

But what about stocks? What should you believe about the stock market?

You should think they're going down.

Why?

Because there's more downside than upside. Because stocks are good things to buy during an expansion, but not during a contraction. Because the bear market that began in 2000, or in 2007, has never fully expressed itself; it has a rendezvous with the bottom...which should be at less than half today's levels. Because stocks normally rise when interest rates go down; today, we're probably facing rising yields for the next 5 or 10 years.

And because there are potential crises coming up in 2011 - which could trigger a big sell-off in stocks.

Because...because...because...

You have to play the odds. The last big run-up in stocks began in 1982. At that time the Dow was barely over 1,000, the yield on a 10-year US Treasury note was around 15%, and the US was just arriving at its Reagan-era peak.

Today, the world is practically the inverse of '82. The Dow is over 14,000 and yields are close to zero. And the US is tired, slipping down like a used-up empire. Yields have nowhere to go but up. The Dow will probably go down.

And even if it doesn't, you should think it will. Because investors are overwhelmingly bullish. They've plumped their money down on stocks. The smart money is taking the other side of that bet. You should too.

And more thoughts...

Europe has its deadbeat debtors. America has its own. Bloomberg reports:

Illinois lawmakers will try this week to accomplish in a few days what they have been unable to do in the past two years - resolve the state's worst financial crisis.

The legislative session that began today as the House convened will take aim at a budget deficit of at least $13 billion, including a backlog of more than $6 billion in unpaid bills and almost $4 billion in missed payments to underfunded state pensions.

The fiscal mess is largely of the lawmakers' own making, and failure to address the shortages threatens public schools, local governments and other public services, said Dan Hynes, the state's outgoing comptroller.

"Illinois's deficit, about half its $26 billion general-fund budget, puts it among the US states confronting $140 billion in shortfalls in the coming fiscal year after closing $160 billion in gaps this year, according to the Center on Budget and Policy Priorities, a Washington research group.

"The state has been spending $3 for every $2 it takes in, and borrowing to cover its current operating expenses," said [Miles] White, chairman of the Civic Committee of the Commercial Club of Chicago.

Wait. That's about the same as the US government. The feds spend about $3 for every $2 they take in too. How come they're not in a financial crisis?

Oh...we forget. They can print money!

*** Jules is a musician. And Brooklyn...or to be more precise, Williamsburg...is the place for up and coming musicians to be.

Or, so he tells us.

Brooklyn - at least this part of it - is an ugly place. Almost all the old apartment buildings have been defaced with rusty fire-escapes put right on the front. Trash is heaped up on the street. Doors are dingy. Floors are worn and dirty. Metal is corroded and twisted. The town looks like it has been in a slump for the last 50 years.

Still, prices are high. Jules pays $1,200 per month for a room in an apartment that we wouldn't live in even if someone paid us. Pipes are jury-rigged and exposed. The "hardwood floors" are made of plywood. Bricks are missing from the walls and the bathroom fixtures are so old they could be the first ones installed in North America.

Still, it looks like it would be fun to live in Brooklyn...if you were 21 years old. Almost everyone we saw was under 30. Most were dressed like "hipsters" - cool, casual, and cheap. The restaurants were funky. We went to one across the street from Jules' apartment. It had been furnished in chairs and tables that must have been bought at the Goodwill or found on the street. Nothing matched. But the walls were painted in bright colors and the waitresses were young and pretty.

Well, maybe we wouldn't mind living in Jules' apartment...if we could be 21 again too.

*** A Dear Reader writes:

My family sounds a lot like yours.

They are "getting tired" of hearing my "gloom and doom" analysis of the US's financial situation.

Unfortunately I have direct experience of hyperinflation, circa 1960's Fidel Castro's Cuba.

My family lost 99% of our assets there. I remember my dad exchanging pesos for dollars at 10 to 1, when a year earlier he could have changed them at about 1 peso for 1 dollar.

I feel the same way now changing dollars for gold and silver - except that I am, relatively, way ahead of what he did.

I love this country and it's so hard for me to see what is happening. I believe that 99% of those that I know are either clueless or in denial.

Regards,

Bill Bonner,
for The Daily Reckoning Australia

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