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- Wednesday Options Recap
- Vale: The Bottom Is In
- Gold Prices up 6.3% in a Quiet Market
- Survey: Gold Price to Increase in 2012
- 2012 Gold Estimates Lowered By Banks - But Remain Bullish
- A Short-lived Pause in the Silver Rally is More Than Likely
- Forget the euro crisis... This country is leading the market now
- Designer Jean-Paul Gaultier creates a new once ounce Gold Bar
- Gold price benefiting from QE speculation
- Gold May Climb on $500 Billion Lending Increase for IMF, Weakening Dollar
- jp morgan's fractional gold scheme is working
- Central banks huge gold buyers in 2011
- LISTEN: Stella on Silver & Schiff
- Moolman: Silver To Make Explosive Move
- Silver Update: “Portfolio Percentage”
- Sprott's PSLV Launches Bid For More Silver
- Jim Rickards: Currency love triangle
- At last the Financial Times notices that central banks do shady things with gold
- Rick Rule - $100 Floor in Oil Now, Gold Strong, Juniors to Soar
- Gold & Silver Market Morning, January 18, 2012
- Wolfie is a Tough Finance Minister
- Derisking Gold Juniors, Step by Step: Rick Mills
- Silver Market Update
- Demand for gold shocking as Comex loses credibility, trader tells King
- Gold & Silver cartel Price Suppression Has Set the Foundation for an Explosive Move
- Buying Gold as the Concrete Sets
- Expert says: Money spent on gold is practically wasted
- The Cinderella Story of China's Economy
- The War Against the Euro
- The Root Cause of Unemployment : Part II : Real Bills and Employment
| Posted: 18 Jan 2012 06:21 AM PST By Frederic Ruffy: SentimentThe grind continues. Stock market averages opened modestly higher Wednesday despite mixed news on the economic front. While the Producer Price Index fell .1 percent in December, and .2 percent below expectations, Industrial Production rose .4 percent and .1 percent less-than-expected. The bright spot was the NAHB's Homebuilder Sentiment Index. HMI unexpectedly surged to four-year highs of 25 in January, from 21 in December and 4 points better than economists had expected. Goldman Sachs (GS) is also shining. The bank's revenue number missed expectations, but at $1.84 per share, the headline EPS number easily topped Street estimates. Crude oil is flat at $100.85 and gold edged up $3.2 to $1658.80 an ounce. A .8 percent advance in the EUR/USD currency pair is possibly helping sentiment on Wall Street as well. The Dow Jones Industrial Average is up 73 points and the tech-heavy NASDAQ gained 36. CBOE Volatility Index (.VIX) Complete Story » |
| Posted: 18 Jan 2012 05:37 AM PST By Bret Jensen: I am following up on my December article on VALE as recent events give me confidence that the bottom has been put in on the stock and investors should expect the stock to move up smartly provided worldwide growth does not collapse. Let's review the investment case: Vale S.A - "Vale S.A. engages in the exploration, production, and sale of basic metals in Brazil. The company is also involved in fertilizers, logistics, and steel businesses". (Business description from Yahoo Finance) (Click chart to expand) New momentum drivers for Vale:
Complete Story » |
| Gold Prices up 6.3% in a Quiet Market Posted: 18 Jan 2012 03:37 AM PST Gold remains a viable, profitable investment. |
| Survey: Gold Price to Increase in 2012 Posted: 18 Jan 2012 02:36 AM PST Predictions from executives surveyed hovered at the $2,000/oz mark, with the highest prediction at $2,500/oz and the lowest at $1,350/oz.Gold. |
| 2012 Gold Estimates Lowered By Banks - But Remain Bullish Posted: 18 Jan 2012 01:48 AM PST |
| A Short-lived Pause in the Silver Rally is More Than Likely Posted: 18 Jan 2012 01:00 AM PST SunshineProfits |
| Forget the euro crisis... This country is leading the market now Posted: 18 Jan 2012 12:16 AM PST From The Reformed Broker: By which I mean that it is no longer necessary to be elated by European bailouts and despondent about European credit downgrades - because the market is now reacting to news and action out of China more than anything else. Europe is so 2011, the VIX barely registers so much as a grunt on headlines that used to turn the NYSE into a shooting gallery (witness Friday's action). On the other hand, China printed an 8.9% growth number and the futures shot higher here and even in Europe, just 36 hours since S&P cut anything that wasn't nailed down in the EZ. And a scant 12 hours after the bailout facility itself was downgraded, the European stock bourses (yeah, I said Bourses homeboy) are all up (UP!). Can you imagine a reaction like this just three months ago? When we were fire-drilling out of stocks on just the rumor of a rumor of a downgrade? Probably not, but that's what is going on. The U.S. stock market can shrug off Europe going forward so long as... Read full article... More on China: China just sent a frightening warning to the U.S. New reports suggest the collapse in China has begun A startling Chinese development we haven't seen in over a decade |
| Designer Jean-Paul Gaultier creates a new once ounce Gold Bar Posted: 18 Jan 2012 12:00 AM PST |
| Gold price benefiting from QE speculation Posted: 17 Jan 2012 11:45 PM PST Signs of a decelerating global economy will likely prompt central banks to take drastic new measures in terms of fiscal expansion. This is especially true for China, where GDP growth continues to ... |
| Gold May Climb on $500 Billion Lending Increase for IMF, Weakening Dollar Posted: 17 Jan 2012 11:41 PM PST Gold may climb in New York as the International Monetary Fund was said to seek to boost lending and as a weaker dollar spurs demand for an alternative asset. The IMF is proposing a $500 billion expansion of its lending capacity to safeguard the global economy against any worsening of Europe's debt crisis, according to a person familiar with the discussions. The dollar fell versus the euro as Greek Prime Minister Lucas Papademos resumes talks with private bondholders today. Gold climbed to a one-month high yesterday, helped by speculation about easing of monetary policy in China. "The safe haven status quo continues to hold its ground as troubles in the euro zone are far from being resolved," Andrey Kryuchenkov, an analyst at VTB Capital in London, wrote today in a report. "Further easing in the euro zone and accommodative monetary policies would be bullion supportive." Gold for February delivery was little changed at $1,655.40 an ounce by 7:58 a.m. on the Comex in New York. Prices climbed to $1,668 yesterday, the highest since Dec. 13. Bullion for immediate delivery rose 0.2 percent to $1,654.93 in London. "A weaker U.S. dollar should be supportive for gold," Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany, said by phone today. Investors Diversify The metal climbed 10 percent in 2011, an 11th consecutive annual gain, as investors sought to diversify from equities and some currencies. While gold slid 14 percent since touching a record $1,923.70 in September, holdings in bullion-backed exchange-traded products are within 2 percent of last month's all-time high. Assets were 2,360.8 metric tons yesterday, the most in four weeks, data compiled by Bloomberg show. The World Bank has cut its global growth forecast by the most in three years, estimating expansion at 2.5 percent this year, down from a June estimate of 3.6 percent. "Core investment drivers have not changed significantly but have merely been delayed by the sovereign debt crisis surrounding the euro," Walter de Wet, the head of commodities research at Standard Bank Plc in London, wrote in a report e- mailed yesterday. "Global liquidity will continue to grow in the current economic environment, which would be supportive for gold." Silver for March delivery rose 0.2 percent to $30.205 an ounce in New York. Palladium for March delivery was down 0.6 percent at $651.55 an ounce. Platinum for April delivery dropped 0.8 percent to $1,516.50 an ounce. To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net http://www.bloomberg.com/news/2012-0...ic-growth.html |
| jp morgan's fractional gold scheme is working Posted: 17 Jan 2012 11:02 PM PST more of the same, from the same couldn't copy paste the text - puter is f-ing up http://truthingold.blogspot.com/2011...scheme-is.html |
| Central banks huge gold buyers in 2011 Posted: 17 Jan 2012 10:15 PM PST Gold had a solid day yesterday, closing the Comex pit session above important resistance at $1,650 per ounce. Silver for March delivery also finished above $30 per ounce. At the currency markets the ... |
| LISTEN: Stella on Silver & Schiff Posted: 17 Jan 2012 09:38 PM PST John Stella on Silver and Schiff.
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| Moolman: Silver To Make Explosive Move Posted: 17 Jan 2012 09:34 PM PST from hubertmoolman: Silver Price Forecast 2012: Silver Price Likely To Make Explosive Move At Some Point
~TVR |
| Silver Update: “Portfolio Percentage” Posted: 17 Jan 2012 09:31 PM PST from BrotherJohnF: ~TVR |
| Sprott's PSLV Launches Bid For More Silver Posted: 17 Jan 2012 09:06 PM PST ¤ Yesterday in Gold and SilverAs I stated in 'The Wrap' last night, the nice rally that developed in gold early in the Far East trading day, ran into the usual suspects about ten minutes before the London open...and that turned out to be the high of the day. And, like the charts I posted yesterday hinted at, the London p.m. gold fix [10:00 a.m. Eastern] was lower than the London a.m. gold fix...which was 5:30 a.m. Eastern time. Gold closed the Tuesday session at $1,651.60 spot...up $8.80 on the day. Net volume, once you remove Monday's volume...and all the roll-overs from Tuesday...was about 111,000 contracts.
Silver's rally also got sold off about ten minutes before the London open...but it's high came about fifteen minutes after Comex trading began in New York yesterday morning...and that, as they say, was that. Silver closed at $30.06 spot...up a whole 9 cents on the day. Net volume on Tuesday was around 28,000 contracts.
The U.S. dollar index got sold off shortly after trading began in the Far East on Tuesday morning...and by 10:25 a.m. in London the index had declined by a bit more than 65 points. That 10:25 a.m. London low is suspiciously close to the London a.m. gold fix. From there it began a smallish rally around 8:00 a.m. Eastern time...and that only lasted an hour or so before it traded sideways for the rest of the New York session. The dollar index only finished down about 35 basis points on the day.
I was surprised to see the gold stocks head south right from the open in New York yesterday morning...but apparently there was some unhappy news out of Kinross, which was down a fairly substantial amount. And Kinross wasn't the only gold stock to get hit for a decent loss...and if you want to read all the newsy details on a daily basis, a subscription to BIG GOLD is but a pittance...and Jeff Clark keeps subscribers up to date on stuff like this. The link to the BIG GOLD home page is here. Anyway, the gold stocks continued to sell off all day, but managed a tiny rally into the close...and the HUI only finished down 1.52%.
With some exceptions, the silver stocks were pretty much down all across the board yesterday as well...but Nick Laird's Silver Sentiment Index was up 0.65% on the day.
(Click on image to enlarge) The CME Daily Delivery Report for Tuesday showed that only 7 gold and 12 silver contracts were posted for delivery on Thursday. In silver it was the Jefferies, Bank of Nova Scotia, JPMorgan ménage à trois again. The link to that action is here. The GLD ETF showed a small addition on Tuesday. They added 48,605 troy ounces of gold. There were no reported changes in SLV. The U.S Mint had a sales report to start the week off right. They sold 4,500 ounces of gold eagles...1,500 one-ounce 24K gold buffaloes...and 525,000 silver eagles. Month-to-date U.S. Mint sales are as follows: 90,000 ounces of gold eagles...9,500 one-ounce 24K gold buffaloes...and 5,122,000 silver eagles. The Comex-approved depositories took in only 25,725 troy ounces of silver on Friday...and shipped 366,285 ounces of the stuff out the door. The link to that is here. I must clarify a story I posted yesterday by Jeff Clark about platinum. I assumed [wrongly, as it turns out] that it was Jeff Clark from Casey Research. It was, in fact, Jeff Clark over at Stansberry Research that wrote that article...obviously two different people. One of them should change their name, as this is the second time I've made this mistake in the last six months. Here's a chart that Washington state reader S.A. sent me yesterday. It's a little difficult to read all the fine print...but the parts you can read clearly are bad enough.
(Click on image to enlarge) I have the usual number of stories today...and I hope you have time to read the few paragraphs of each story that I've cut and paste from each one, so you at least get the flavour of the article. Could the Commercial traders engineer a sell-off in gold and silver at this point? You bet. Could we blast off from here? You bet. Egon von Greyerz: Huge metal demand in advance of European QE. Rick Rule - $100 Floor in Oil Now, Gold Strong, Juniors to Soar. Financial Times notices shady things with gold. ¤ Critical ReadsSubscribeHalf of U.S. Households Received Government Benefits in 2010A record-high 49% of the population lived in a household receiving some type of government benefit in the second quarter of 2010, according to Census data reported by The Wall Street Journal. Most of this group received so-called "means tested" benefits like food stamps, subsidized housing or Medicaid. Many are also benefiting from unemployment insurance spending, which has quadrupled since the downturn. Is this statistic a watershed mark of our decline into socialism, a totally reasonable outcome from the Great Recession, or, somehow, both things at the same time? This story was originally published in The Atlantic...and was picked up by finance.yahoo.com. I thank reader Scott Pluschau for sending it along...and the link is here.  Recovery at risk as Americans raid savingsMore than four years after the United States fell into recession, many Americans have resorted to raiding their savings to get them through the stop-start economic recovery...and in an ominous sign for America's economic growth prospects, workers are paring back contributions to college funds and growing numbers are borrowing from their retirement accounts. Some policymakers worry that a recent spike in credit card usage could mean that people, many of whom are struggling on incomes that have lagged inflation, are taking out new debt just to meet the costs of day-to-day living. American households "have been spending recently in a way that did not seem in line with income growth. So somehow they've been doing that through perhaps additional credit card usage," Chicago Federal Reserve President Charles Evans said on Friday. This Reuters story was posted on their website yesterday morning...and I thank Roy Stephens for his first offering of the day. The link is here.  Cupcakes confiscated by TSAThis story definitely deserves to be in a special folder in the top drawer of the "You-can't-make-this-stuff-Up" filing cabinet. A Massachusetts woman's cupcake sparked a potential security threat when she tried to board a plane. Rebecca Hains said she was going through security at the airport in Las Vegas when a TSA agent pulled her aside and said the cupcake frosting was "gel-like" enough to constitute a security risk. Hains said she was able to pass through Boston's Logan International Airport security with two cupcakes, but she was stopped on the way back when she tried to return with one of them. "We went out with two cupcakes in a jar and TSA in Boston said these look delicious, but TSA in Las Vegas thought they looked dangerous," Hains said. This story was posted over at the kplctv.com website between Christmas and New Years...and I thank reader 'David in California' for sending it to me in the wee hours of this morning. The link is here.  Clearing houses: the next casualty of the crisis?Clearing houses -- the plumbers of high finance -- could become the next casualties of the crisis as regulators insist that banks run their riskiest and private trades through them. At the moment banks conduct over-the-counter trades between themselves: one to one dealings often involving multimillion-euro bets on differences in interest or other rates, the scale and complexity of which can be difficult to track. But with the financial crisis still raging and banks, hedge funds and governments alike faced with unforeseen levels of debt, regulators are now forcing this shadowy, $600-trillion industry into the light. The question being asked by industry insiders is whether the clearing houses, also known as central counterparties (CCPs), are any more secure. This Reuters story, filed from London on Monday morning, is courtesy of West Virginia reader Elliot Simon...and is definitely worth the read. The link is here.  Jim Rickards: Currency love triangleWriting for King World News, geopolitical analyst James G. Rickards argues that the U.S. dollar, the euro, and the Chinese yuan are in a dance toward devaluation, first against each other and ultimately against gold. Rickards' commentary is headlined "Currency Love Triangle" and it's posted at the KWN website. Eric sent me this story early on Tuesday morning, but yesterday's column was already jammed full...and I didn't have room for it until today. The link is here...and it's definitely worth reading as well.  Stiglitz says European austerity plans are a 'suicide pact'Imposing austerity measures as countries slow towards recession is a fundamentally flawed response, said Mr. Stiglitz, who won the Nobel prize in 2001 for his work on how markets work inefficiently. "The answer, even though they see over and over again that austerity leads to collapse of the economy, the answer over and over [from politicians] is more austerity," said Mr. Stiglitz to the Asian Financial Forum, a gathering of over 2,000 finance professionals, businessmen and government officials in Hong Kong. "It reminds me of medieval medicine," he said. "It is like blood-letting, where you took blood out of a patient because the theory was that there were bad humours. "And very often, when you took the blood out, the patient got sicker. The response then was more blood-letting until the patient very nearly died. What is happening in Europe is a mutual suicide pact," he said. This story was posted in The Telegraph yesterday morning...and is Roy Stephens second offering of the day. The link is here.  Jim Rickards: Currency love triangle Posted: 17 Jan 2012 09:06 PM PST  Writing for King World News, geopolitical analyst James G. Rickards argues that the U.S. dollar, the euro, and the Chinese yuan are in a dance toward devaluation, first against each other and ultimately against gold. Rickards' commentary is headlined "Currency Love Triangle" and it's posted at the KWN website. Eric sent me this story early on Tuesday morning, but yesterday's column was already jammed full...and I didn't have room for it until today. The link is here...and it's definitely worth reading as well. |
| At last the Financial Times notices that central banks do shady things with gold Posted: 17 Jan 2012 09:06 PM PST  Central banks increased the amount of gold they lent for the first time in a decade in 2011, as they used their bullion reserves to help commercial banks raise US dollars. Although central banks hold one sixth of all the gold ever mined in their reserves, their activities in the bullion market are opaque, with not a single institution revealing its day-to-day operations. In addition to holding gold for their reserves, some central banks also trade the metal, lending it on the open market in order to obtain a yield. Thomson Reuters GFMS, the precious metal consultancy that publishes benchmark statistics on the gold market, on Tuesday said that the quantity of gold lent by central banks had risen last year for the first time since 2000. |
| Rick Rule - $100 Floor in Oil Now, Gold Strong, Juniors to Soar Posted: 17 Jan 2012 09:06 PM PST  Eric King sent me this Rick Rule blog yesterday evening. It's posted over at the King World News website...and it's certainly worth your time. The link is here. |
| Gold & Silver Market Morning, January 18, 2012 Posted: 17 Jan 2012 09:00 PM PST |
| Wolfie is a Tough Finance Minister Posted: 17 Jan 2012 08:23 PM PST "Germany's finance minister Wolfgang Schaeuble says he's confident that Europe's politicians will manage to stabilize the Eurozone in 2012 and keep the continent's common currency together." "Mr. Schaeuble acknowledged in an interview with business daily Handelsblatt, published on Friday, that major problems remain to be tackled in some countries. But he was quoted as saying: "I think we will be far enough along in the next 12 months that we will have banished the dangers of contagion and stabilized the Eurozone." "Asked whether he could rule out the 17-nation Euro-zone breaking-up, Mr Schaeuble replied: "According to everything that I know at the moment, yes. "Of course, the European Union cannot force anyone to stay in if they don't want to belong any more. But no such development can seen at the moment." "Germany, Europe's biggest economy, is a key player in the long-running battle to stem the Eurozone debt crisis. It has backed the strategy of getting governments to embark on often-savage austerity measures to reduce deficits. But it has opposed measures such as issuing jointly backed Euro-bonds and argued that there is no quick fix to the crisis, expressing great skepticism about the wisdom of a major government bond-buying drive by the European Central Bank that is advocated by many as a way of forcing down struggling countries' borrowing costs." "The talk of bazookas and the like only leads to us not tackling sustainably the causes of the crisis," Mr. Schaeuble was quoted as saying. The Euro-zone will quickly face new challenges in 2012, with both Italy and Spain needing to borrow large amounts of money early in the new year. Both countries face high borrowing costs. Mr. Schaeuble acknowledged that Europe's refinancing needs in early 2012 are "not trivial." "But the more we win back confidence on the markets, the more investors … will invest in the Euro-zone, and not just in German bonds," he said. "There is no shortage of money worldwide. In case of doubt, a somewhat higher interest rate has to be paid for some government bonds,' Mr. Schaeuble said. 'That is not damaging per se and also can encourage the understanding that we have to tackle the actual causes of the crisis: overly high debts and a lack of competitiveness." "The finance minister's comments came just a day after Beatrice Weder di Mauro, one of German Chancellor Angela's Merkel's economic advisers, refused to rule-out a break-up of the Euro-zone. She said on Thursday that while the collapse of the single currency would be "bad for everyone involved", it cannot "be completely excluded". – Telegraph Stafff 12-30-11 London Mr. Schaeuble is trying his best under very difficult circumstances. The latest remarks, were in our view, an attempt to calm down the herd and stop the crazy markets' volatility. We say nothing can be done, and the March meeting will be watched with great hopefulnes and apprehension. Final results yield nothing and Germany and others will swiftly move in 2012 to exit the Euro currency and Euro-land's vise grip gracefully.         This posting includes an audio/video/photo media file: Download Now |
| Derisking Gold Juniors, Step by Step: Rick Mills Posted: 17 Jan 2012 06:00 PM PST If you're among the many who consider investing in the junior resource sector nothing more than a crapshoot, look into Ahead of the Herd Publisher Rick Mills' steps to derisk the inherently risky... Visit the aureport.com for more information and for a free newsletter |
| Posted: 17 Jan 2012 05:00 PM PST |
| Demand for gold shocking as Comex loses credibility, trader tells King Posted: 17 Jan 2012 05:00 PM PST |
| Gold & Silver cartel Price Suppression Has Set the Foundation for an Explosive Move Posted: 17 Jan 2012 05:00 PM PST |
| Buying Gold as the Concrete Sets Posted: 17 Jan 2012 04:36 PM PST |
| Expert says: Money spent on gold is practically wasted Posted: 17 Jan 2012 04:31 PM PST Regular readers of this blog know I watch reports from Vietnam as an indicator of how Governments deal with large flows of money out of fiat and into gold. Non-first world countries feel this more I think and thus they give us a view into the future as to how first world countries will respond when they get hit with a real loss of faith in the ability of fiat to hold value over time and/or a view that there are few productive investment opportunities in the economy. This Mineweb article on India raising import taxes on gold and silver has some interesting quotes in this respect: "...this hike will discourage imports ... that is what the government wants, since imports have made a huge dent in India's growth story and growth seems to be flagging" "The shift away from financial savings to something which will just lie in lockers around the country could be a large contributing factor to lower growth..." "Another expert with a nationalised bank pointed out that money locked up in the yellow metal effectively disappears from the economy to become jewellery or sits idle in cupboards and bank lockers." "Money spent on gold is practically wasted and it is also excluded from the financial intermediation system. Imports needed to be curbed." "The massive jump in gold imports has also led to an increase in current account deficit." No surprise that most of this plays on the "gold is useless" meme. In actual fact I agree with that. One's savings are better invested in productive businesses and entrepreneurs rather than an inert metal. However, what the financiers, technocrats and politicians don't get is that movements into gold are a clear signal or vote by savers that the economy is crap. The solution is not to block the signal, but to solve the underlying problem. Actually the way to solve it is to get out of the way and stop fiddling with the economy but that would put them out of a job I suppose. What these guys are doing is taking painkillers so the pain in their chest won't bother them. Then they'll all be surprised when they get a heart attack. Indeed, money flowing into gold is painful. That's the point.  |
| The Cinderella Story of China's Economy Posted: 17 Jan 2012 04:15 PM PST Everyone knows that when the clock strikes midnight for Cinderella, the carriage turns back into a pumpkin, the horse into mice and the jewelled gown into rags. The spell is broken and reality returns. I keep thinking of China in this context. One of the big questions of the year is whether China's economy blows up or not. Hard landing or soft? When will the clock strike midnight on the Chinese? Things are slowing down, and it feels like it's getting late. But first, why does this matter? China matters because China is big. If this were 1980 - when China's economy was about one-seventh the size of the US's economy, no one would care. Today, the appetite China has for raw materials is no secret, and is one of the main reasons why miners and oilmen are flush with cash. So if you invest in miners and oil companies, then the answer to the hard landing question decides the fate of your portfolio. For some ideas on this front, I turned to my friend Ben Simpfendorfer, founder of the Hong Kong-based Silk Road Associates (and author of an excellent book, The New Silk Road). He also writes a very good letter focused on China called China Insider. Ben speaks both Mandarin and Arabic and has travelled extensively in Asia and the Middle East. As such, he has an inside look on two cultures that few Westerners will ever see. I admire his work for these reasons, and also because he is critical and thoughtful about China's prospects, whereas many others are either unfailingly sunny or permanently apocalyptic. In his latest letter, which just hit my inbox this morning, Ben addresses the very question I open with: hard landing or not? "I expect no hard landing in 2012," Ben writes. As for 2013-15, Ben is much more bearish. As with any prediction, though, the reasoning is more important (and more interesting) than the conclusion. The key is to understand that China still has a lot of spending power. Let's take a look... "China could afford to go on another debt binge in the event that the economy appears to slow abruptly," Ben writes. "Sure, it has implications for medium-term growth (and I'll get to that in a moment), but the ability to continue borrowing, or further relax fiscal and monetary policy, does rule out the risks of a hard landing in 2012." In the past, China was able to skirt the financial crisis because it simply commanded its state-owned banks and state-owned firms to embark on big projects. It has the firepower to continue to do so in 2012. One place it will certainly focus on is housing. Housing prices are falling nationally. But housing markets are intensely local. You should be suspicious of attempts to aggregate them. Ben appreciates this. "A look at major city clusters around the country shows that property sales have collapsed in areas centred on Beijing, Shanghai and Hangzhou," he writes, "even as they remain steady in places such as Chongqing, Hefei and Shenyang." Ben continues: "My own experience - traveling through nearly a dozen second-tier cities over the past six months - echoes the data, with some cities clearly about to suffer a horrible property crash even as others look more balanced owing to less supply, but also a stronger local domestic economy (typically the coastal provinces) that is less reliant on fiscal stimulus." As to that stimulus, China's government plans to build 7 million public housing units annually over the next five years. This is a big increase from the 3 million units China's state-owned units built in the years 2008-10. And it's also a lot bigger than the 5 million units the private sector created over that time. But think what this means. It's an artificial stimulus. Its goal is mainly to keep people working. However, the market itself clearly does not support such an increase. Ben peels back some of the numbers on the profits earned by builders. The five large state-owned firms earn profit margins of only 8%, according to data compiled by SouFun (a leading real estate data provider). This compares with 15-25% profit margins for private companies in recent years. I'm taking these at face value, though my suspicion is that the data overstate the profitability of the public firms. You know, though, how economics works. As profit margins shrink, this is the market's signal that the capital is perhaps best used elsewhere. Governments can ignore this signal, at least in the short term. But private firms cannot. They must serve the wishes of consumers or they will go out of business eventually. They also have owners who will see that the profits no longer compensate for the risks. They will pull back. And this is what's happened. This next chart is telling. It shows you the number of units built each year by private and public firms. You can see the big jump in public construction, which was part of China's stimulus plan. But look at that blue line. It's levelled out and declined last year:  "In effect," Ben sums up, "the shift toward construction of more public housing implies that state-owned firms, operating at smaller margins, will capture an ever-larger share of economic activity...at the expense of the more-dynamic private sector." So more and more of China's economy becomes dependent on government spending. We know that such government spending leads to bridges to nowhere. Or, in China's case, empty office buildings, empty condo towers, empty malls and, indeed, empty cities. That's a big problem - but it's probably not a 2012 story. Ben concludes: "Whether because of chances that a property crash is limited to certain parts of the country, or because of China's ability to pump more credit into the economy, the odds are that 2012 turns out to be surprisingly dull, with the economy slowing, but still growing at above an 8% rate..." It's also an election year in China. Senior leadership will change in China in late 2012. All the more reason to expect massive spending from government coffers to keep the spell unbroken, if only for another year. The time frame just beyond 2012 is the problem. Maybe the government spends so much that it produces reasonable-looking economic numbers and keeps people employed, but the resulting economic growth would have been a fantasy. Economies exist only to satisfy human wants and needs. They do not exist to produce numbers that look good in economic reports. China's economy will have failed, just as other state-directed economies have failed, in its essential task of serving consumers. It becomes, then, an expensive fiction. China's coffers, as rich as they appear, are also not inexhaustible. All of this means there is an inevitable quality to the collapse here, though the timing is hard to call. At least for 2012, it seems investors can count on China coming to the table with its usual gusto to spend money. But the clock is ticking and midnight approaches. Regards Chris Mayer is Managing Editor of the US-based newsletters Capital and Crisis and Mayer's Special Situations. This article first appeared in The Daily Reckoning USA. Similar Posts: |
| Posted: 17 Jan 2012 04:12 PM PST Well, rumour has it the European Central Bank (ECB) is planning another €1 trillion Long Term Refinancing Operation (LTRO) for February 29th. Rumour also has it the Greeks will default on March 20th. And of course, the market would have fully priced all that in already, right? Maybe not. On days like today (Wednesdays) we like to turn to the chart stylings of Slipstream Trader, Murray Dawes. Our resident technical analyst and price action maven has just posted his new weekly analysis of the S&P 500 and the ASX/200. You view it by clicking on this stock market update link. Murray's staccato written summary of his video follows:
Sticking to my bearish view in the S+P 500. A move back below 1265-1270 (Currently 1290) should see some large selling come out of the woodwork. Topping formations take time but we appear to be in the early stages of one now. If S+P 500 rallies above 1320-1330 I will have to reassess my view. We suspect news events may have something to do with the price action this week, too. It's not because the news is really new. It's because most investors (or people who buy stocks) have become incredibly reactive in the era of Quantitative Easing. One day it's "buy buy buy!" And another it's "sell sell sell!" The long-term big picture view is discounted. In any event, there is good news everyone! China's economy grew at 8.9% in the fourth quarter. Granted, that growth rate was down from 9.1% in the third quarter. But it seems like a lot of growth for an economy of 1.2 billion people. And it's certainly a lot more growth than, say, in Europe, Japan, or America. You can never be sure about any of these figures from state-managed economies, and we'd include the United States in that category. But taken at face value, the GDP figures might give China's central bankers leeway to cut interest rates, relax reserve requirements and banks, and generally loosen the reins on credit growth to pep things up a bit. Mind you, China is one of the peppiest places in the world. Even though the fourth quarter GDP figures were the slowest in two years, China has passed a historical milestone of sorts. Its urban population is now larger than its rural population for the first time in history. The great migration from the farm to the factory has altered the physical structure of China's living arrangement. According to the Financial Times...
The historic population milestone, reached by UK and US in 1851 and 1920 respectively, was marked by a single sentence buried in a government press release on the country's quarterly economic performance. According to the figures, 51.27 per cent of China's population, or 691m people, were living in urban areas by the end of last year, up from 49.95 per cent at the end of 2010. This is exactly the sort of statistic we expect a few speakers at our After America conference in Sydney in March to highlight. If you're moving to the Big Smoke, you need a roof over your head, a factory to work in, a market to buy your food in, a hospital to give birth in, a hospital to die in, and a Nike store to buy your shoes in. If China's internal migration is analogous to the industrialisation of the US and British economies in the 19th and 20th century, then the migration could arguably unleash "domestic demand". Factory workers probably make more money than a farmer. And if they make more money, they'll probably spend more money. You wouldn't guess any of that by looking at the chart below, though. The Reuters/Jefferies CRB Index has been making lower highs and lower lows since April of 2011. You can see it's bounced off the 292 level (or thereabouts) four times since October of 2010. It's at 310 now. So what would a move to 292 and a break below that level tell you?  The obvious answer to the question above is that a move below 292 tells you commodities are weakening. This would be consistent with less-than-expected growth in China. And it would be consistent with the fear that Europe will blow up this year and that China may be the unintended victim via its exposure to European debt (and not just European demand for Chinese exports). The obvious answer isn't always the right one, though. The non-obvious answer is that the CRB is showing US dollar strength. Or, more to the point, the looming €1 trillion LTRO planned by the ECB is driving the euro down relative to all other currencies. Since commodities are priced in US dollars, dollar strength puts a cap on commodity prices (absent supply and demand pressures). It's all a bit confusing. Such is the nature of a fiat money system in which no values are fixed and everything is relative. The resulting swings in prices have less to do with the intrinsic worth of assets or goods and services...and more to do with a global game of "beggar thy neighbour", in which countries use currency debasement as a weapon in the economic war to compete. Some in Europe believe that S&P's downgrading of sovereign European credit ratings was a part of America's "war against the euro". The Americans are trying to discredit the euro in order to perpetuate dollar hegemony, so goes the argument. Hmm. It's possible. It's also possible that all central bankers and monetary policy makers are singing from the same hymnal. Their answer to the end of the credit bubble is to try and pump it back up with currency debasement. In that case, this is a war of all against all. How do you survive a war of all against all? Well the best answer is not to play. And the best way not to play is to own forms of wealth that are useful, tangible, durable, and valuable no matter what currency they're denominated in. Can you think of anything that fits that description? Regards, |
| The Root Cause of Unemployment : Part II : Real Bills and Employment Posted: 17 Jan 2012 04:00 PM PST Gold University |
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