Weekday NEWS to Comfort the Disturbed and Disturb the Comfortable.
Thur 08.20.2009
Where are we in the Gold Cycle? The world is slowly moving to wards tangibles and away from financials. The ongoing commodity bull market is eight years old and considering that commodity bull markets over the past 100 years have lasted on average 17 years, the current bull-run could go on for another decade. And the long-term leading indicators for oil, copper and the base metals are all reinforcing this. As for gold, its main purpose is money. Gold is the ultimate currency, it's a safe haven and it thrives during economic uncertainty. Gold and commodities tend to move together in a general wave but it will outperform or underperform the other metals and commodities at times.
Q2 gold demand robust: Indian sales up and central banks net buyersDespite an uptick in jewellery demand, gold had to shoulder a weighty burden of excess supply in the second quarter A recent piece on Mineweb carried the headline "Gold needs good news if it is to break through the $960 barrier". The latest issue of Gold Demand Trends, published by the World Gold Council using figures compiled by independent research house GFMS gives some good news, but illustrates also that the market still has some way to go before overall physical demand can again be regarded as truly vibrant, although some of the early necessary ingredients are there.
American Spirit Emerging By: John Browne Despite growing concerns about the growth in Federal spending, voiced this week by none other than Warren Buffett, Washington seems determined to keep its foot on the money pumping accelerator for as long as it can. But even though Washington continues to ignore the realities, alarm bells are beginning to ring at town halls across the country. Last week the Fed left its key short-term rates frozen at 0 to 0.25 percent, enabling banks to borrow at near zero and reap spreads as high as 6 to 24 percent. The Fed also continued its policy of paying interest on banks' reserves, further boosting Wall Street's bottom line. The government has decided to save the banks, no matter how much the public has to suffer.
The Morality Hazard of the Fed Ron Paul's new book, End the Fed (out next month) illuminates the real reasons behind America's recent stunning economic collapse. The Federal Reserve would just as soon you not read it, and instead believe the standard refrains from the standard economists (including those at the Fed): "No one saw it coming! How could anyone have predicted it?" One school of economic thought - the Austrian School - predicted it, and the world's most famous practitioner of that school, Dr. Ron Paul, has been warning of it for over 30 years. In fact, Ron Paul's vision of our current slow motion decline is what got Dr. Paul into politics in the first place. A primary catalyst behind his decision to seek office was Richard Nixon's decision to "temporarily" remove the dollar's gold backing in 1971. This set the table for the mess we're now in.
Nixon Ends Bretton Woods International Monetary System On August 15, 1971, President Nixon announced on TV 3 dramatic changes in economic policy. He imposed a wage-price freeze. He ended the Bretton Woods international monetary system. And he imposed a temporary surcharge (tariff) on all imports. The Bretton Woods system was created towards the end of World War II and involved fixed exchange rates with the U.S. dollar as the key currency - but also a role for gold linked to the dollar at $35/ounce. The system began to falter in the 1960s because of an excess of dollars flowing out of the U.S. which foreign central banks had to absorb. A run on gold in 1968 was stemmed by a patch on Bretton Woods known as the two-tier gold system. All of this was ended unilaterally by the Nixon decision. After a brief attempt to create a modified fixed exchange rate system, the world moved to flexible rates.
Deflation Theory Is Lemon We Have All Been Sold For much of the last year, central bankers, industrial leaders and politicians have been warning us about deflation. Falling prices, they tell us, will create another 1930s-style depression. The only answer is to print money furiously. Now it turns out the theory is a lemon. Deflation is no threat at all. It doesn't prevent an economy from functioning, and it doesn't stop it from recovering either. The evidence suggests a period of sustained deflation might be what indebted economies need to get them back on the right track.
Rubicon Says Gold Deposit May Rival Campbell Complex Rubicon Minerals Corp. Chief Executive Officer David Adamson said gold resources at the company's Phoenix deposit in Canada may rival Goldcorp Inc.'s nearby Campbell mine. "The size of the system we're currently defining is as large as the Campbell deposit, and the Campbell system was producing for well over 40 years," Adamson said in a telephone interview yesterday. "The more we drill, the larger this system gets."
Dollar to lose reserve currency status: Jim Rogers Price weakness continued to be manifest in the precious and base metals complexes overnight, as China's stock market index fell another 4.3% and came to the point of requiring the 'bear market' label to be applied to it by market technicians. Albeit analysts see the Chinese market implosion this month as somewhat counterintuitive, there are other signs that point to justifiable apprehensions.
Dollar to Lose Reserve Status - But Is There an Alternative Currency? Pacific Investment Management Co., which runs the world’s biggest bond fund, said the dollar will probably fall as it loses its status as a reserve currency. The dollar will especially drop against emerging-market counterparts, Curtis A. Mewbourne , a Pimco portfolio manager, wrote in a report on the company’s Web site. Investors should consider cutting their holdings of the U.S. currency, he said. “While we have not yet reached the point where a new global reserve currency will arise, we are clearly seeing a loss of status for the U.S. dollar as a store of value even in the absence of a single viable alternative,” Mewbourne wrote. Though I agree that the US dollar is losing status and will continue to fall against currencies of fast-growing emerging nations, it is difficult to see any alternative to the dollar as a reserve currency in the foreseeable future. Having said that, I am long gold, and expect to see gold hit new highs as all fiat currencies lose value relative to real assets.
FDIC Sees Ag Banks As The Next Big Crisis I bet this headline will catch the attention of readers from the beltway of Washington, D.C. to the depths of rural America. This is the word on the street circulating in conversations with lenders and producers in agriculture and rural America on my recent Road Warrior travels. While these rumors may be false, perception becomes reality in the boardrooms and loan committees of our lending institutions, which will ripple to producers.
Ron Paul: The Free Market as Regulator 8/17/09
PIMCO: Dollar Supremacy Is Coming To An End PIMCO portfolio manager Curtis Mewbourne is getting a lot of attention for a new report predicting the long-term demise of the dollar, or at least its end as the undisputed reserve currency. This kind of stuff is great for sensational headlines, though Mewbourne's own argument isn't particularly sensational or novel. It basically comes down to: The emerging economies, notably China, are coming on fast, and China is starting to do more trade directly with other countries without the need for dollars.
How Quickly Could The Dollar Collapse? We popped up on the “wrong” side of the inflation/deflation argument here the other day with a hyperinflation scenario that seems to us not just possible but likely. Although we hold fast to a prediction that deflation is going to run its course, throwing tens of millions of Americans into bankruptcy, before relief comes to debtors, we are persuaded that at some point well down the road the U.S. will throw the switch to hyperinflate. Even so, we believe that the attendant collapse of the dollar will play out far more quickly than the collapse of the German mark during the Weimar hyperinflation of 1922-23. So swiftly will this occur, in our opinion, that the hyperinflationary spike will begin and end in mere weeks, leaving deflationary to dominate both before (as it continues to do now) and long after.
The FDIC Is Broke. Now What? (Part II) An additional pressure on the DIF stems from the fact that losses from prior FDIC enforcements have been dramatically higher than initial estimates. With each new FDIC report, we see less money in the DIF kitty than expected. This next article does a great job of articulating that this is because bank assets are worth a lot less than originally thought: On January 1 2009 the FDIC reported it had $17,276 million in the DIF and according to press releases for each failed bank, the estimated total costs for FDIC’s DIF during Q1 amounted to $2,146 million, leaving $14,997 million in the fund. However, according to the latest FDIC Quarterly report the fund counted $13,007 million at the start of Q2, – a difference of $1,990 million.
Deficit to be $1.58 trillion this year Federal deficit to reach $1.58 trillion for fiscal year The White House plans to announce the federal deficit will be about $262 billion less than officials predicted earlier this year -- in part because the administration has provided less aid than expected to Wall Street. The federal deficit this year will total $1.58 trillion, a senior White House official said late Wednesday. That's three times more red ink than last year. The official spoke on the condition of anonymity to discuss the report before its release next Tuesday while President Barack Obama will be on vacation in Massachusetts. The new deficit numbers are record shattering, but would give the Obama administration the opportunity to say that its policies have avoided a more extreme financial crisis and eliminated the need for further bank infusions.
Buffett: Debt Mountain Could Turn America Into A Banana Republic Berkshire Hathaway CEO Warren Buffett, a supporter of Barack Obama and an indirect beneficiary of the bailouts, writes in a NYT op-ed to warn about the crushing mountain of debt the US government is now building up. After laying out the staggering numbers, he concludes thusly: I want to emphasize that there is nothing evil or destructive in an increase in debt that is proportional to an increase in income or assets. As the resources of individuals, corporations and countries grow, each can handle more debt. The United States remains by far the most prosperous country on earth, and its debt-carrying capacity will grow in the future just as it has in the past.
Judge Napolitano: Everything the Government Runs is Bankrupt! 8/18/09
Pension funds back buy-out fight over bank deals ‘Chilling effect’ on revival efforts cited in letter to FDIC A coalition of large US state pension funds has backed the private equity industry’s opposition to new rules on takeovers of troubled lenders, saying the plan would have a “chilling effect” on attempts to revive the country’s banking system. The warning by funds from states including New York, New Jersey and Oregon, which manage billions of dollars on behalf of public workers and are big investors in private equity, will strengthen the buy-out industry’s lobbying against the proposed measures.
Texas bank hit by California dreaming Although the failure of Austin-based Guaranty Bank looms, its problems reflect the housing bubble in the Golden State rather than issues at home. Bank regulators have a Texas-sized problem on their hands -- though it's easy to see much of the trouble resides farther west. Guaranty Bank, an Austin-based savings institution with $13.5 billion in assets, is expected to be seized by the FDIC by the end of the week. According to multiple reports late Wednesday, Spanish bank Banco Bilbao Vizcaya (BBV) has won the bidding for Guaranty. Representatives for the FDIC and Guaranty were not immediately available for comment.
JP Morgan Bails Out California Remember when the US government had to bail out investment banks? Now a bank is bailing out the state of California. California had been covering its budget shortfalls by issuing IOUs to pay for services, making it the first state to issue its own fiat currency since the Civil War. The program ran into trouble when banks announced they wouldn't keep cashing the IOUs.
PIMCO'S El-Erian: U.S. stock rally has hit a wall Mohamed El-Erian, the chief executive of top bond fund manager PIMCO, on Tuesday said the rally in U.S. stocks had topped out because valuations have shot up too quickly. Asked if U.S. stocks have hit a wall, El-Erian told Reuters Television: "I think we have, and I think what you are seeing is a massive tug of war going on."
US, European markets recover after China slump World stock markets recover earlier losses, some wonder if this year's gains can be sustained World markets recovered earlier losses Wednesday, as investors weighed the importance of a sharp drop in China's main index, which some took as a sign that stocks are overpriced after this year's powerful rally. With a lack of new economic data across most of Europe and the U.S., investors focused on the jitters in Asia, where Shanghai's index fell as much as 5 percent on worries that the Chinese government's easy credit policy to support the economy will not fuel a sustainable recovery. But the open in Wall Street gave investors some confidence, allowing indexes to trim some losses.
The Greenback Effect IN nature, every action has consequences, a phenomenon called the butterfly effect. These consequences, moreover, are not necessarily proportional. For example, doubling the carbon dioxide we belch into the atmosphere may far more than double the subsequent problems for society. Realizing this, the world properly worries about greenhouse emissions. The butterfly effect reaches into the financial world as well. Here, the United States is spewing a potentially damaging substance into our economy — greenback emissions.
Judge Napolitano Interviews Peter Flaherty 8/19/09: JPMorgan's ties with Obama, ACORN
Documentary Spotlights Closing of Ohio GM Plant One is staining his deck. Another is studying Web design. A third has given up off-roading to save money. All are unemployed, stripped of jobs they thought were safe forever. Now, the autoworkers are stars of a documentary film that chronicles their final months at a General Motors Corp. sport utility vehicle plant in Moraine, just south of Dayton. They're among nearly 1,100 people who lost their jobs when GM closed the plant in December. Many of the workers plan to attend a special screening of HBO's documentary, ''The Last Truck: Closing of a GM Plant,'' on Wednesday night. The 40-minute film is scheduled to debut on Labor Day.
UBS to disclose 4,450 Swiss accounts 'Historic' move helps IRS pursue tax evaders, funds Under an agreement negotiated by the governments of Switzerland and the U.S., the IRS will get access to less than one-fourth of the accounts held by Americans at Swiss banking giant UBS AG that the bank itself previously acknowledged were kept secret from U.S. tax authorities. It's a deal the Swiss and outside banking analysts say will preserve Switzerland's centuries-old reputation for secrecy and security, but also gives U.S. authorities a start in pursuing wealthy tax scofflaws.
NYC Commercial Real Estate Deals Fall 90% This is definitely a horrible time to be a commercial real estate broker in NYC. In the first half of the year, there were only 3 transactions worth more than $30 million, which is 1/10th of the normal volume by this time. What's more, valuations are down by half. Cap rates -- essentially a building's PE ratio -- have gone from the 3 to the 7s, meaning the building is throwing off about 7% of its purchase price in income each year.
Will US Banking Collapse 2009?
Reduced World Trade Is Destroying Container Ships One very tangible manifestation of weak consumer demand is what's happening with container ships. World trade is down, so the number of ships needed to transfer stuff from country to country is necessarily less. And idle ships cost a lot of money. What to do? Destroy them.
If the recession did not get you, the recovery might Difficult and dangerous times lie ahead. They will test businesses to the limit. I am referring not to the recession – old news from the viewpoint of the City and the media – but to the recovery. For while the downturn has had upsides for many companies, an upturn also has downsides. This column is a little previous. Most businesses see no signs of a bounce back. “We are bumping along the bottom,” says veteran entrepreneur John Timpson, touring his 620 home service stores. But hacks are always in a hurry to be first with the news, or an angle on it. We are like party guests who arrive while the hostess is still doing her hair, eat all the nibbles and duck out just as the dancing starts.
Credit card interest rates up 20 percent in six months, study says Problems with your credit card? Can't pay because of high interest rates? It no wonder. Credit card rates have risen 20 percent in the first six months of the year in advance of new consumer-oriented legislation going into effect, according to a study by the Pew Charitable Trusts.
Spending Quandaries Mount as the Recession Continues The recession is proving to be as stubborn as a toddler who won't go to bed. The longer it slogs on, the more your nerves are frayed. And, understandably, some people have become more indecisive in making financial choices. It's hard for people to determine whether to hold on to their savings, buy what they need or want, or pay down debt. During a recent online discussion, I received lots of questions from chat participants trying to sort all this out. Here are some of the decision dilemmas:
Buffett: We're Going to Be Crushed Under Mountain of Debt A highly influential American has finally hit the panic button about the tremendous mountain of debt the country is piling up. Last year, Warren Buffett says, we were justified in using any means necessary to stave off another Great Depression. Now that the economy is beginning to recover, however, we need to curtail our out-of-control spending, or we'll destroy the value of the dollar and many Americans' life savings.
8/19/09 Peter Schiff on Fox Business: Warren Buffett is dead wrong on how to fix economy!
From Tea Parties to The 912 Project, Americans Are Challenging The Government Be it the Tea Party gatherings, or a 912 Movement that will march on Washington, Americans are at the end of their patience in dealing with a government that is running amok. In Sacramento, California citizens have formed a national "Tea Party Express" that will be conducting a series of 35 tea party rallies across the United States to oppose the Obama Administration's healthcare proposal. Their caravan will start in California on August 28 and travel eastward arriving at their destination just before a massive 9/12/09 Taxpayer March in Washington D.C. Television ads will be run in advance of the 35 rallies as the Tea Party Express travels across the country.
Certified pre-owned cats Shelters stocked with pets Patrick Boehringer of Canton, Mich., couldn't be a more satisfied customer. He calls Apricot, his Certified Pre-Owned Cat, "the best animal I ever had." Apricot came with a free "multipoint inspection" including spay/neuter surgery, vaccinations, behavioral evaluation and grooming. And you can't beat the price: As the Certified Pre-Owned Cats campaign poster says, with no money down, no financing and no payments, these cats are "better than new!" The Michigan Humane Society's clever ad campaign is an effort to draw attention to a problem that shelters across the country are dealing with: The large number of adult cats looking for homes.
Obama's Well Organized Community Is Falling Apart It's now official-the average American is not as stupid as Washington DC Democrats and their international leftist friends thought. Their mystery messiah has already gone from hero to zero after only eight months in power, and Obama has now become a noose around the neck of every American Democrat, and every international fascist who "hoped" Obama could usher in Marxist "change."
Obama Hurt by Health-Care Confusion, Lack of Leadership Another day brings another new poll showing what's obvious to all but the most strident Democratic partisans: Obama's health-care reform effort is floundering. According to the latest NBC/Wall Street Journal poll:
Obama's overall approval ratings have fallen to 51% vs. 61% in April.
Only 41% approve of Obama's handling of health-care reform and only 24% believe it will improve the quality of care.
54% worry the government will go too far in reforming the system while 41% worry it won't do enough to lower costs and cover the uninsured.
Obamacare Puts Families Making $192,920 on Welfare The current debate over whether the national health care plan being developed in Congress should or should not include a so-called "public option"-a health insurance plan set up by the government to compete with private health insurance providers-misses the point. In reality, the entirety of the congressional health care plan is a "public option." It is all about one thing: putting government in control of health care.
Obamacare: Quintessential Socialism The overriding characteristic of President Obama's National Socialist healthcare is forced equality of consumption, a major step in the direction of egalitarian distribution of income. Emphasis is upon the word forced. As we see with the widespread town hall protests against the President's proposed National Socialist healthcare proposals, people do not willingly surrender the fruits of many years' labor to the government in the name of an undefined abstraction called the common good. Particularly is this true when it is liberal-progressive bureaucrats who decide arbitrarily what constitutes the common good.
House Dems seek info from health insurers House Democrats request detailed records from industry opposed to health legislation Dozens of the nation's largest insurance firms must decide whether to honor a request from House Democrats for detailed financial records, part of an investigation into executive compensation and other business practices in an industry that opposes President Barack Obama's health care proposals. A spokesman for Rep. Bart Stupak, D-Mich., said Tuesday night that 52 letters had been sent to health insurers with $2 billion or more in annual premiums. He said letters were not dispatched to other industry groups, some of which have been airing television advertising in support of Obama's call for legislation.
What The Obama Health Care Reform Legislation Actually Says With all the yelling about a government takeover of health care or lofty promises that everything will be fixed at no cost, it's easy to forget what the legislation actually says. In fact, it's hard to figure it out in the first place. Finally, there's a fact-based, no-spin primer on the draft bills in Congress now: Miyanville's "What ObamaCare Really Means To You And Your Dear Old Granny." It's hard to distill the distilled -- there's a lot more plainly laid out in the article -- but here's a basic breakdown of what's in current legislation:
If you have insurance now, you can keep it
Even if you get sick, you can actually use your insurance.
You'll have a choice of health care insurance plans.
'None Of The Above' Is Not An Option.
Your employer will likely cover you
Medicare and Medicaid would be reformed, but essentially expanded
It looks like the richest Americans are going to pay up, one way or another
There are a lot of scary lies out there.
Dealers want end to Cash for Clunkers National Automobile Dealers Association wants an orderly closure of program and again expresses concerns that funds are running out. The National Automobile Dealers Association is urging the federal government to begin shutting down the Cash for Clunkers program immediately. In a statement released Wednesday evening, NADA said that, given the rapid pace at which deals are being done, it will be difficult to say when the program's funds may run out.
Climate Bill ‘Out of Control,’ Former Senator Says Cap-and-trade legislation to limit U.S. carbon dioxide emissions has “gotten out of control” and needs to be scaled back in Congress, said former Democratic Senator Timothy Wirth. “The Republicans are right -- it’s a cap-and-tax bill,” Wirth, a climate-change negotiator during President Bill Clinton’s administration, said in an Aug. 14 interview. “That’s what it is because they are raising revenue to do all sorts of things, especially to take care of the coal industry, and it makes no sense.”
Japan Weighing the nuclear option In his 2008 New Year's speech, Japanese political doyen and former Prime Minister Yasuhiro Nakasone warned that without a clear-cut national vision and objective, Japan might tread a path toward ruin like the ancient city-state of Carthage, which was defeated and destroyed by Rome in 146 B.C. Referring to the confusion in the country over how to address the question of national security, especially the alliance between Japan and the United States, Nakasone made these points:
Why Asia Will Supplant Detroit as the Global Center of the Auto Industry Asia is poised to become the "new" Detroit. Here in the United States, at a cost of a mere $3 billion, the "Cash-for-Clunkers" program appears to have given new hope to the U.S. auto industry. But that new hope is destined to be short-lived. It's true that - in terms of value delivered for the money invested - "Cash for Clunkers" has eclipsed every other stimulus program that has been tried. But the program has a projected lifespan of only three months, meaning it can't reverse the powerful global forces that are destined to turn the U.S. auto market from leader to laggard on the global stage.
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