Holiday Sales Drop to Force Bankruptcies, Closings (Update4)
By Heather Burke
Dec. 29 (Bloomberg) -- U.S. retailers face a wave of store closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years.
Retailers may close 73,000 stores in the first half of 2009, according to the International Council of Shopping Centers. Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations.
More than a dozen retailers, including Circuit City Stores Inc., Linens ‘n Things Inc., Sharper Image Corp. and Steve & Barry’s LLC, have sought bankruptcy protection this year as the credit squeeze and recession drained sales. Investors will start seeing a wide variety of chains seeking bankruptcy protection in February when they file financial reports, said Burt Flickinger.
“You’ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains either multi- regionally or nationally go out,” Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York, said today in a Bloomberg Radio interview. “There are a number that are real causes for concern.”
Sales at stores open at least a year probably dropped as much as 2 percent in November and December, the ICSC said last week, more than the previously projected 1 percent decline. That would be the largest drop since at least 1969, when the New York-based trade group started tracking data. Gap Inc. and Macy’s Inc. are among retailers that will report December results on Jan. 8.
Women’s Clothing, Electronics
Consumers spent at least 20 percent less on women’s clothing, electronics and jewelry during November and December, according to data from SpendingPulse.
Retail Metrics Inc.’s December comparable-store sales index will drop an estimated 1.2 percent, or 5 percent excluding Wal- Mart Stores Inc. Retailers’ fourth-quarter earnings may fall 19 percent on average, the seventh consecutive quarterly decline, according to Ken Perkins, president of Retail Metrics, a Swampscott, Massachusetts-based consulting firm.
Probably 50,000 stores could close without any effect on consumer choice, Gregory Segall, a managing partner at buyout firm Versa Capital Management Inc., said this month during a panel discussion held at Bloomberg LP’s New York offices. Only retailers with healthy balance sheets will survive the recession, according to Matthew Katz, a managing director at consulting firm AlixPartners LLP.
Store Closings
The ICSC predicts, using U.S. Bureau of Labor Statistics data, that 148,000 stores will shut down in 2008. That would be the largest number since 151,000 closings in 2001, during the last recession, according to ICSC Chief Economist Michael Niemira. The total number of retail establishments will decline by about 3 percent this year, also taking into account locations that were opened, he said. The U.S. had 1.11 million retail locations in 2002.
Another 73,000 locations may shut their doors in the first part of 2009, Niemira said.
The U.S. economy shrank in the third quarter at a 0.5 percent annual pace, the worst since 2001, according to the Commerce Department. Economists surveyed by Bloomberg in the first week of December forecast the world’s largest economy will contract through the first half of 2009.
The Standard & Poor’s 500 Retailing Index has shed 34 percent this year, with only two of its 27 companies rising.
The index doesn’t include Wal-Mart, the world’s largest retailer, which fell 24 cents to $55.11 at 4:02 p.m. in New York Stock Exchange composite trading. Wal-Mart shares have gained 18 percent this year.
Wednesday, December 31, 2008
Monday, December 29, 2008
UK Pound Falls Below Euro
Pound Falls to 98 Pence Per Euro for 1st Time on Housing Slump
By Matthew Brown
Dec. 29 (Bloomberg) -- The U.K. pound weakened to a record 98 pence per euro after an industry report said house prices will probably extend declines next year, boosting the case for deeper interest-rate cuts by the Bank of England.
Britain’s currency also dropped versus 14 of its 16 most- traded counterparts, falling for a second day against the Swiss franc and tumbling to a 14-year low against Japan’s yen. Property research company Hometrack Ltd. said U.K. house values slid 8.7 percent this year, led by a 10.1 percent drop in London, and that prices will “inevitably” decline in 2009.
“Parity is ever more likely” between the pound and the euro, said Daragh Maher, deputy head of global foreign-exchange strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “If there’s going to be a turnaround in euro-sterling it needs to come from the euro.”
The pound depreciated as much as 2 percent to 98 pence per euro, its sixth straight daily drop, and was at 97.47 pence by 5:35 p.m. in London, from 96.10 pence at the end of last week. It sank 25 percent against the European common currency this year, the most since the euro was introduced in 1999.
Britain’s currency dropped as much as 1.3 percent versus the yen to 76.31 pence, the lowest since April 18, 1995, before paring declines to 76.06 pence. It slipped 2.5 percent to 1.5218 francs. The U.K. currency was little changed at $1.4573, near the lowest level in more than three weeks.
“Sterling’s had to contend with the soft house-price numbers overnight” and retailers haven’t “had a particularly good December,” said Maher.
More than 1,600 people will lose their jobs in the U.K. every day in 2009, the Daily Telegraph reported, citing a report by the Chartered Institute of Personnel and Development. A total of 600,000 face being put out of work next year, the newspaper said today.
Rate Cuts
The Bank of England cut its main interest rate to 2 percent from 5 percent this year as the British government nationalized Northern Rock Plc and Bradford & Bingley, and took stakes in Royal Bank of Scotland Group Plc, HBOS Plc and Lloyds TSB Group Plc to prop up the financial sector. The U.K. economy is in its first recession in 17 years.
“There are very few people betting against a 1:1 rate now” between the pound and the euro, said Angus Campbell, head of sales at Capital Spreads. “Expectations for further cuts in interest rates are proving a serious negative for sterling and, with a shortened week once again, it’s not long before the next meeting.”
The U.K. central bank will cut its main rate a half-point to 1.5 percent at its meeting on Jan. 8, according to the median estimate of 38 economists surveyed by Bloomberg News.
Rebound Forecast
Even after its worst-ever year against the euro, Britain’s currency may rebound in 2009 as investors bet on a recovery in the U.K. economy, according to the world’s biggest currency traders.
The pound will strengthen 14 percent versus the euro next year, according to the median forecast of 42 analysts and strategists surveyed by Bloomberg. Deutsche Bank AG, the largest trader as measured by Euromoney Institutional Investor Plc, expects a 20 percent gain. At the same time, economists surveyed by Bloomberg before a Jan. 2 industry report estimated Europe’s manufacturing industries shrank for a seventh month in December.
‘Signs of Life’
“We’ll see some signs of life in the U.K. economy sooner than we do in the euro zone,” said Henrik Gullberg, a strategist at Deutsche Bank in London. “Even though we might be far away from a rate hike in the U.K.,” it may happen “sooner in the U.K. than in the euro zone,” he said.
The European Central Bank lowered its main refinancing rate by 0.75 percentage point to 2.5 percent on Dec. 4, its biggest- ever cut, as the euro region suffered the first recession since the introduction of its common currency.
U.K. government bonds fell, pushing the yield on the 10-year gilt up five basis points, or 0.05 percentage point, to 3.10 percent. The price of the 5 percent security due March 2018 slipped 0.45, or 4.5 pounds per 1,000-pound ($1,457) face amount, to 115.07. The two-year gilt yield increased three basis points to 1.17 percent. Yields move inversely to bond prices.
Gilts declined as gains in equity markets sapped demand for the safest assets. The FTSE 100 index of leading U.K. stocks advanced 2.4 percent, the most in three weeks.
By Matthew Brown
Dec. 29 (Bloomberg) -- The U.K. pound weakened to a record 98 pence per euro after an industry report said house prices will probably extend declines next year, boosting the case for deeper interest-rate cuts by the Bank of England.
Britain’s currency also dropped versus 14 of its 16 most- traded counterparts, falling for a second day against the Swiss franc and tumbling to a 14-year low against Japan’s yen. Property research company Hometrack Ltd. said U.K. house values slid 8.7 percent this year, led by a 10.1 percent drop in London, and that prices will “inevitably” decline in 2009.
“Parity is ever more likely” between the pound and the euro, said Daragh Maher, deputy head of global foreign-exchange strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “If there’s going to be a turnaround in euro-sterling it needs to come from the euro.”
The pound depreciated as much as 2 percent to 98 pence per euro, its sixth straight daily drop, and was at 97.47 pence by 5:35 p.m. in London, from 96.10 pence at the end of last week. It sank 25 percent against the European common currency this year, the most since the euro was introduced in 1999.
Britain’s currency dropped as much as 1.3 percent versus the yen to 76.31 pence, the lowest since April 18, 1995, before paring declines to 76.06 pence. It slipped 2.5 percent to 1.5218 francs. The U.K. currency was little changed at $1.4573, near the lowest level in more than three weeks.
“Sterling’s had to contend with the soft house-price numbers overnight” and retailers haven’t “had a particularly good December,” said Maher.
More than 1,600 people will lose their jobs in the U.K. every day in 2009, the Daily Telegraph reported, citing a report by the Chartered Institute of Personnel and Development. A total of 600,000 face being put out of work next year, the newspaper said today.
Rate Cuts
The Bank of England cut its main interest rate to 2 percent from 5 percent this year as the British government nationalized Northern Rock Plc and Bradford & Bingley, and took stakes in Royal Bank of Scotland Group Plc, HBOS Plc and Lloyds TSB Group Plc to prop up the financial sector. The U.K. economy is in its first recession in 17 years.
“There are very few people betting against a 1:1 rate now” between the pound and the euro, said Angus Campbell, head of sales at Capital Spreads. “Expectations for further cuts in interest rates are proving a serious negative for sterling and, with a shortened week once again, it’s not long before the next meeting.”
The U.K. central bank will cut its main rate a half-point to 1.5 percent at its meeting on Jan. 8, according to the median estimate of 38 economists surveyed by Bloomberg News.
Rebound Forecast
Even after its worst-ever year against the euro, Britain’s currency may rebound in 2009 as investors bet on a recovery in the U.K. economy, according to the world’s biggest currency traders.
The pound will strengthen 14 percent versus the euro next year, according to the median forecast of 42 analysts and strategists surveyed by Bloomberg. Deutsche Bank AG, the largest trader as measured by Euromoney Institutional Investor Plc, expects a 20 percent gain. At the same time, economists surveyed by Bloomberg before a Jan. 2 industry report estimated Europe’s manufacturing industries shrank for a seventh month in December.
‘Signs of Life’
“We’ll see some signs of life in the U.K. economy sooner than we do in the euro zone,” said Henrik Gullberg, a strategist at Deutsche Bank in London. “Even though we might be far away from a rate hike in the U.K.,” it may happen “sooner in the U.K. than in the euro zone,” he said.
The European Central Bank lowered its main refinancing rate by 0.75 percentage point to 2.5 percent on Dec. 4, its biggest- ever cut, as the euro region suffered the first recession since the introduction of its common currency.
U.K. government bonds fell, pushing the yield on the 10-year gilt up five basis points, or 0.05 percentage point, to 3.10 percent. The price of the 5 percent security due March 2018 slipped 0.45, or 4.5 pounds per 1,000-pound ($1,457) face amount, to 115.07. The two-year gilt yield increased three basis points to 1.17 percent. Yields move inversely to bond prices.
Gilts declined as gains in equity markets sapped demand for the safest assets. The FTSE 100 index of leading U.K. stocks advanced 2.4 percent, the most in three weeks.
Thursday, December 25, 2008
Yuan Kills Dollars
*****China makes Yuan an international currency*****
by Eric deCarbonnel
China makes yuan an international currency! This is a HUGE development which is VERY bearish for the dollar. Below are three articles on the subject.
(emphasis mine) [my comment]
Article from xinhuanet.com:
Commerce minister: China not to promote export through currency depreciation
www.chinaview.cn 2008-12-24 14:02:32
BEIJING, Dec. 24 (Xinhua) -- China will not hinge upon depreciation of its currency, renminbi, to expand exports, according to Commerce Minister Chen Deming. [very, very bad news for the dollar and the US.]
"Given shrinking demand from abroad, the effect of export stimulation through currency depreciation is rather limited," Wednesday's People's Daily quoted Chen as saying.
"Recently, some countries depreciated their currencies but failed to reverse the downward trend of their foreign sales through such moves," he told the paper. [He is talking about South Korea whose currency fell by a third against the dollar this year. South Korea's exports are down 18%.]
China hoped that all nations would make joint efforts and enhance coordination to keep international foreign exchange markets stable, Chen said. [He is implying here that something might happen to make the foreign exchange markets unstable (dollar collapse)]
article from AFP:
China to try using yuan as settlement currency in some foreign deals: report
15 hours ago
BEIJING (AFP) — China will use the yuan in transactions with neighbouring economies on a trial basis, state media said Thursday, calling it a potential first step to making it an international currency.
…
The initiative emerged from a meeting Wednesday of the State Council, or cabinet, but no details were available on when it would be implemented, according to the paper.
"The move will... increase the yuan's acceptance in Asia, which will help it become an international currency in the long run," Zhao Xijun, a finance professor at the People's University in Beijing, told the paper.
The vast majority of China's foreign trade deals are currently settled either in euros or US dollars.
…
Central bank governor Zhou Xiaochuan warned earlier this month that settlements using the US dollar would be problematic if the dollar's value fluctuated drastically.
There has been growing pressure over the past year within China to make the yuan an international currency, but the government has so far been cautious as it would require making it fully convertible, the paper said.
The yuan is not yet convertible on the capital account, meaning funds cannot freely enter the country for purposes such as investment in stock or real estate.
The Chinese government is concerned that liberalising this type of fund flow would make the economy more vulnerable during times of regional or global turmoil.
Another article from xinhuanet.com:
Senior official: Renminbi likely to be used as currency for forex reserves
www.chinaview.cn 2008-12-25 17:01:12
BEIJING, Dec. 25 (Xinhua) -- China's currency, Renminbi, is likely to join other international currencies to be used for forex reserves by other economies, according to Wu Xiaoling, former vice governor of the country's central bank and now the deputy head of the financial and economic committee under the top legislature.
Wu made the remarks in her article carried by the latest annual issue of the leading business magazine Caijing.
Wu wrote that China should make preparations in its economic structure and its financial regime for its currency to be internationalized.
Prior to making the Renminbi, also called yuan, a currency used for forex reserves by other economies, it may be allowed to be used for trade settlements between China and some other countries and regions, according to Wu.
In China's neighboring countries, there were calls for the yuan to be used to settle bilateral trade payments, she said. China has signed settlement agreements with eight neighboring countries, including Russia, Mongolia, Vietnam and Myanmar, assuming a voluntarily choice of settlement currency, she added.
Many were confident of the yuan and willing to settle trade payments in the Chinese currency, as it remained strong, Wu said.
"China should create conditions for the yuan to become an international settlement currency," she stressed.
…
The Chinese Government has decided to allow the yuan to be used for settlement between Guangdong Province and the Yangtze River Delta and the special administrative regions of Hong Kong and Macao.
Meanwhile, Guangxi Zhuang Autonomous Region and Yunnan Province will be allowed to use Renminbi to settle trade payments with ASEAN (Association of Southeast Asian Nations) members, according to a government announcement on Wednesday evening.
But the Government did not give any details of how and when the pilot currency program would start.
"The move will mitigate the risk of exchange rate fluctuations for Chinese exporters and their trade partners," Zhao Xijun, finance processor at Renmin University of China, was quoted as saying by Thursday's China Daily.
My reaction: Wow.
First, the big news items:
1) China has announced its intentions to make the yuan an international currency.
2) China not to promote export through currency depreciation.
3) China has signed settlement agreements with eight neighboring countries, including Russia, Mongolia, Vietnam and Myanmar, assuming a voluntarily choice of settlement currency.
4) Soon, foreign central will likely be able to use the yuan for forex reserves.
5) China is worried about a possible dollar devaluation
My comments on the story:
1) These announcement was made on Charismas to avoid tanking the dollar.
2) If yuan becomes an international currency, there will a massive migration by central banks from dollar reserves into yuans, because the China's fundamentals are so strong compared to the US.
3) China's announcement that they will not " promote export through currency depreciation" means Chinese financing of our trade deficit is about to come to a very nasty end.
4) From the articles I have read, it is apparent that Chinese exporters are screaming at their government to internationallize its currency so they can bill in yuan instead foreign currencies. Their desire is completely understandable. After all, how would you like to be paid in monopoly money (US dollar)?
5) If the yuan is allowed to compete freely with the dollar, our currency will get crushed.
Again, wow. I have been predicting that China would drop its dollar peg, but now it is actually happening...
by Eric deCarbonnel
China makes yuan an international currency! This is a HUGE development which is VERY bearish for the dollar. Below are three articles on the subject.
(emphasis mine) [my comment]
Article from xinhuanet.com:
Commerce minister: China not to promote export through currency depreciation
www.chinaview.cn 2008-12-24 14:02:32
BEIJING, Dec. 24 (Xinhua) -- China will not hinge upon depreciation of its currency, renminbi, to expand exports, according to Commerce Minister Chen Deming. [very, very bad news for the dollar and the US.]
"Given shrinking demand from abroad, the effect of export stimulation through currency depreciation is rather limited," Wednesday's People's Daily quoted Chen as saying.
"Recently, some countries depreciated their currencies but failed to reverse the downward trend of their foreign sales through such moves," he told the paper. [He is talking about South Korea whose currency fell by a third against the dollar this year. South Korea's exports are down 18%.]
China hoped that all nations would make joint efforts and enhance coordination to keep international foreign exchange markets stable, Chen said. [He is implying here that something might happen to make the foreign exchange markets unstable (dollar collapse)]
article from AFP:
China to try using yuan as settlement currency in some foreign deals: report
15 hours ago
BEIJING (AFP) — China will use the yuan in transactions with neighbouring economies on a trial basis, state media said Thursday, calling it a potential first step to making it an international currency.
…
The initiative emerged from a meeting Wednesday of the State Council, or cabinet, but no details were available on when it would be implemented, according to the paper.
"The move will... increase the yuan's acceptance in Asia, which will help it become an international currency in the long run," Zhao Xijun, a finance professor at the People's University in Beijing, told the paper.
The vast majority of China's foreign trade deals are currently settled either in euros or US dollars.
…
Central bank governor Zhou Xiaochuan warned earlier this month that settlements using the US dollar would be problematic if the dollar's value fluctuated drastically.
There has been growing pressure over the past year within China to make the yuan an international currency, but the government has so far been cautious as it would require making it fully convertible, the paper said.
The yuan is not yet convertible on the capital account, meaning funds cannot freely enter the country for purposes such as investment in stock or real estate.
The Chinese government is concerned that liberalising this type of fund flow would make the economy more vulnerable during times of regional or global turmoil.
Another article from xinhuanet.com:
Senior official: Renminbi likely to be used as currency for forex reserves
www.chinaview.cn 2008-12-25 17:01:12
BEIJING, Dec. 25 (Xinhua) -- China's currency, Renminbi, is likely to join other international currencies to be used for forex reserves by other economies, according to Wu Xiaoling, former vice governor of the country's central bank and now the deputy head of the financial and economic committee under the top legislature.
Wu made the remarks in her article carried by the latest annual issue of the leading business magazine Caijing.
Wu wrote that China should make preparations in its economic structure and its financial regime for its currency to be internationalized.
Prior to making the Renminbi, also called yuan, a currency used for forex reserves by other economies, it may be allowed to be used for trade settlements between China and some other countries and regions, according to Wu.
In China's neighboring countries, there were calls for the yuan to be used to settle bilateral trade payments, she said. China has signed settlement agreements with eight neighboring countries, including Russia, Mongolia, Vietnam and Myanmar, assuming a voluntarily choice of settlement currency, she added.
Many were confident of the yuan and willing to settle trade payments in the Chinese currency, as it remained strong, Wu said.
"China should create conditions for the yuan to become an international settlement currency," she stressed.
…
The Chinese Government has decided to allow the yuan to be used for settlement between Guangdong Province and the Yangtze River Delta and the special administrative regions of Hong Kong and Macao.
Meanwhile, Guangxi Zhuang Autonomous Region and Yunnan Province will be allowed to use Renminbi to settle trade payments with ASEAN (Association of Southeast Asian Nations) members, according to a government announcement on Wednesday evening.
But the Government did not give any details of how and when the pilot currency program would start.
"The move will mitigate the risk of exchange rate fluctuations for Chinese exporters and their trade partners," Zhao Xijun, finance processor at Renmin University of China, was quoted as saying by Thursday's China Daily.
My reaction: Wow.
First, the big news items:
1) China has announced its intentions to make the yuan an international currency.
2) China not to promote export through currency depreciation.
3) China has signed settlement agreements with eight neighboring countries, including Russia, Mongolia, Vietnam and Myanmar, assuming a voluntarily choice of settlement currency.
4) Soon, foreign central will likely be able to use the yuan for forex reserves.
5) China is worried about a possible dollar devaluation
My comments on the story:
1) These announcement was made on Charismas to avoid tanking the dollar.
2) If yuan becomes an international currency, there will a massive migration by central banks from dollar reserves into yuans, because the China's fundamentals are so strong compared to the US.
3) China's announcement that they will not " promote export through currency depreciation" means Chinese financing of our trade deficit is about to come to a very nasty end.
4) From the articles I have read, it is apparent that Chinese exporters are screaming at their government to internationallize its currency so they can bill in yuan instead foreign currencies. Their desire is completely understandable. After all, how would you like to be paid in monopoly money (US dollar)?
5) If the yuan is allowed to compete freely with the dollar, our currency will get crushed.
Again, wow. I have been predicting that China would drop its dollar peg, but now it is actually happening...
Tuesday, December 23, 2008
50-50 Chance of Depression , Bloomberg
50% chance of depression in US
Bloomberg
Published: December 20, 2008, 22:40
San Francisco: The US economy has a 50 per cent chance of falling into a depression during the next three years, said Roger Farmer, a member of the National Bureau of Economic Research's economic fluctuations and growth programme.
"There's a significant probability things will get worse," Farmer, 53, said during a phone interview Friday. "We're certainly not at the end of the recession and things are getting worse."
A drop in the Conference Board's index of leading indicators, released Thursday, underscores econo-mists' expectations that the recession will be the longest in the postwar era as banks restrict credit, home and stock values plunge, and job losses mount. Farmer said he is predicting the US recession will last at least another year.
"Everything depends on business confidence, and what I see is declining confidence," said Farmer, who is also graduate vice-chair of the Economics Department of the University of California at Los Angeles.
The loss of confidence is leading households and companies to undervalue assets, which is hurting consumer spending and investment, he said. A government fiscal stimulus programme will have a "questionable" immediate effect on consumption and financial markets, Farmer said.
Instead, he said he supports the idea of letting the Federal Reserve or government step into the stock market by buying indexed securities such as those linked to the Standard & Poor's 500 Index.
Left to itself
"I don't think anything from historic episodes suggests that, left to itself, the economy is going to magically recover and come back to full employment," he said.
Employers cut 533,000 jobs from payrolls in November for a total loss so far this year of 1.9 million, which more than erases the 2007 gain of 1.1 million. The unemployment rate, now at 6.7 per cent, may go above 10 per cent, Farmer said.
Farmer's views on the likelihood of a US depression contrast with those of other economists, such as New York University professor Nouriel Roubini, who told Bloomberg Television last week that he sees a severe recession and not a depression.
Bloomberg
Published: December 20, 2008, 22:40
San Francisco: The US economy has a 50 per cent chance of falling into a depression during the next three years, said Roger Farmer, a member of the National Bureau of Economic Research's economic fluctuations and growth programme.
"There's a significant probability things will get worse," Farmer, 53, said during a phone interview Friday. "We're certainly not at the end of the recession and things are getting worse."
A drop in the Conference Board's index of leading indicators, released Thursday, underscores econo-mists' expectations that the recession will be the longest in the postwar era as banks restrict credit, home and stock values plunge, and job losses mount. Farmer said he is predicting the US recession will last at least another year.
"Everything depends on business confidence, and what I see is declining confidence," said Farmer, who is also graduate vice-chair of the Economics Department of the University of California at Los Angeles.
The loss of confidence is leading households and companies to undervalue assets, which is hurting consumer spending and investment, he said. A government fiscal stimulus programme will have a "questionable" immediate effect on consumption and financial markets, Farmer said.
Instead, he said he supports the idea of letting the Federal Reserve or government step into the stock market by buying indexed securities such as those linked to the Standard & Poor's 500 Index.
Left to itself
"I don't think anything from historic episodes suggests that, left to itself, the economy is going to magically recover and come back to full employment," he said.
Employers cut 533,000 jobs from payrolls in November for a total loss so far this year of 1.9 million, which more than erases the 2007 gain of 1.1 million. The unemployment rate, now at 6.7 per cent, may go above 10 per cent, Farmer said.
Farmer's views on the likelihood of a US depression contrast with those of other economists, such as New York University professor Nouriel Roubini, who told Bloomberg Television last week that he sees a severe recession and not a depression.
Monday, December 22, 2008
Saturday, December 20, 2008
U.S. Approaches Insolvency
U.S. debt approaches insolvency
Asia News
December 20, 2008
In the United States, the danger of debt insolvency is growing, putting at risk the currency reserves of foreign countries, China chief among them. According to new figures published by Bloomberg in recent days (Nov. 25, 2008 [1]), the American government has employed a total of 8.549 trillion dollars to stop the financial crisis. This means a total of about 24-25.4 trillion dollars of direct or indirect public debt weighing on American taxpayers. The complete tally must also include the debt - about 5-6 trillion dollars - of Fannie Mae and Freddie Mac, which are now quasi-public companies, because 79.9% of their capital is controlled by a public entity, the Federal Housing Finance Agency, which manages them as a public conservatorship.
In 2007, public debt in the United States was 10.6 trillion dollars, compared to a GDP (gross domestic product) of 13.811 trillion dollars. In just one year, direct and indirect public debt have grown to more than 100% of GDP, reaching 176.9% to 184.2%. These percentages exclude the debt guaranteed by policies underwritten by AIG, also nationalized, and liabilities for health spending (Medicaid and Medicare) and pensions (Social Security)[2]. By way of comparison, the Maastricht accords require member states of the European Union (EU) to reduce their public debt to no more than 60% of GDP. Again by way of comparison, in one of the EU countries with the largest public debt, Italy, public debt in 2007 was equal to 104% of GDP.
In 2007, 61.82% [3] of America’s public debt was held by foreign investors, most of them Asian. So the U.S. public debt held by nonresident foreigners is equal to about 109.39% (113.86%) of GDP. According to a study by the International Monetary Fund, countries with more than 60% of their public debt held by nonresident foreigners run a high risk of currency crisis and insolvency, or debt default. On the historical level, there are no recent examples of countries with currencies valued at reserve status that have lapsed into public debt insolvency. There are also few or no precedents of such a vast and rapid expansion of public debt.
The United States also runs large deficits in its public balance sheet and balance of trade. Families and businesses are also deeply in debt: in 2007, American private debt was equal to a little more than 100% of GDP. At the moment, it is not clear how much of America’s private debt has been “nationalized” with the recent bailouts.
In the early months of next year, when the official data are published, the United States will run a serious risk of insolvency. This would involve, in the first place, a valuation crisis for the dollar. After this, the United States could face a social crisis like that in Argentina in 2001. A crisis in U.S. public debt would likely have a severe impact on the Asian countries that are the main exporters to the United States, China first among them. Chinese monetary authorities, thanks to a steeply undervalued artificial exchange rate, at about 55% of its fair value, have limited imports (including food) and have achieved an export surplus. This has allowed them to accumulate a large stockpile of dollar reserves. In a currency crisis, China risks losing much of the value of its accumulated currency reserves. At the same time, pressure on imports (wheat, other grains, and meat) have led to inflation in the prices of food, the most important expenditure for more than 900 million Chinese. This is nothing more than a small confirmation of the recent statements of the pope, in his message for the World Day for Peace, where the pontiff calls the current financial system and its methods “based upon very short-term thinking,” without depth and breadth (nos. 10-12), preoccupied with creating wealth from nothing and leading the planet to its current disaster.
Asia News
December 20, 2008
In the United States, the danger of debt insolvency is growing, putting at risk the currency reserves of foreign countries, China chief among them. According to new figures published by Bloomberg in recent days (Nov. 25, 2008 [1]), the American government has employed a total of 8.549 trillion dollars to stop the financial crisis. This means a total of about 24-25.4 trillion dollars of direct or indirect public debt weighing on American taxpayers. The complete tally must also include the debt - about 5-6 trillion dollars - of Fannie Mae and Freddie Mac, which are now quasi-public companies, because 79.9% of their capital is controlled by a public entity, the Federal Housing Finance Agency, which manages them as a public conservatorship.
In 2007, public debt in the United States was 10.6 trillion dollars, compared to a GDP (gross domestic product) of 13.811 trillion dollars. In just one year, direct and indirect public debt have grown to more than 100% of GDP, reaching 176.9% to 184.2%. These percentages exclude the debt guaranteed by policies underwritten by AIG, also nationalized, and liabilities for health spending (Medicaid and Medicare) and pensions (Social Security)[2]. By way of comparison, the Maastricht accords require member states of the European Union (EU) to reduce their public debt to no more than 60% of GDP. Again by way of comparison, in one of the EU countries with the largest public debt, Italy, public debt in 2007 was equal to 104% of GDP.
In 2007, 61.82% [3] of America’s public debt was held by foreign investors, most of them Asian. So the U.S. public debt held by nonresident foreigners is equal to about 109.39% (113.86%) of GDP. According to a study by the International Monetary Fund, countries with more than 60% of their public debt held by nonresident foreigners run a high risk of currency crisis and insolvency, or debt default. On the historical level, there are no recent examples of countries with currencies valued at reserve status that have lapsed into public debt insolvency. There are also few or no precedents of such a vast and rapid expansion of public debt.
The United States also runs large deficits in its public balance sheet and balance of trade. Families and businesses are also deeply in debt: in 2007, American private debt was equal to a little more than 100% of GDP. At the moment, it is not clear how much of America’s private debt has been “nationalized” with the recent bailouts.
In the early months of next year, when the official data are published, the United States will run a serious risk of insolvency. This would involve, in the first place, a valuation crisis for the dollar. After this, the United States could face a social crisis like that in Argentina in 2001. A crisis in U.S. public debt would likely have a severe impact on the Asian countries that are the main exporters to the United States, China first among them. Chinese monetary authorities, thanks to a steeply undervalued artificial exchange rate, at about 55% of its fair value, have limited imports (including food) and have achieved an export surplus. This has allowed them to accumulate a large stockpile of dollar reserves. In a currency crisis, China risks losing much of the value of its accumulated currency reserves. At the same time, pressure on imports (wheat, other grains, and meat) have led to inflation in the prices of food, the most important expenditure for more than 900 million Chinese. This is nothing more than a small confirmation of the recent statements of the pope, in his message for the World Day for Peace, where the pontiff calls the current financial system and its methods “based upon very short-term thinking,” without depth and breadth (nos. 10-12), preoccupied with creating wealth from nothing and leading the planet to its current disaster.
Friday, December 19, 2008
S & P Downgrades 11 Banks
S&P downgrades 11 of world’s top banks
By Jane Croft in London and Greg Farrell in New York
Published: December 19 2008 18:30 | Last updated: December 19 2008 18:30
Eleven of the world’s biggest banks were downgraded Friday by Standard & Poor’s after the ratings agency said the current downturn could be longer and deeper than previously thought.
Six major US banks were downgraded, including JPMorgan Chase, Bank of America and Wells Fargo, as well as five banks in Europe.
EDITOR’S CHOICE
In depth: European banks - Apr-10In depth: US banks - Oct-15Mixed response to Credit Suisse’s pay plan - Dec-19The agency cut its ratings on Citigroup, Morgan Stanley and Goldman Sachs by two notches each. In Europe, S&P shaved one notch off the ratings of Barclays, Credit Suisse, Deutsche Bank, Royal Bank of Scotland and UBS.
While the downgrades were driven in part by the worsening economic climate in the US and abroad, S&P noted specific causes for concern at each institution.
S&P analyst Tanya Azarchs said that, in addition to the economic woes, the banking sector’s “lax underwriting standards due to excess competition mean this cycle will be worse than prior cycles”.
UBS saw its rating fall from AA- to A+ as S&P highlighted the extremely high level of losses suffered by the Swiss bank since the start of the business cycle, reflecting “larger risk concentrations and weaker risk management than we had previously perceived”.
Deutsche Bank also saw its ratings lowered from AA- to A+ as S&P pointed out that it viewed asset quality “as likely to weaken materially and risk management to be weaker relative to risks”.
Barclays was downgraded from AA to AA- as S&P said that although Barclays had diversified its loan book many of its geographic exposures were in countries such as Spain and the UK, where it believed there was potential for a severe slowdown.
S&P also singled out Barclays’ increased exposure to capital markets from the acquisition of the former businesses of Lehman.
The agency also downgraded Royal Bank of Scotland from AA- to A+, despite the £20bn of capital it has received from the UK government. It said the bank had been lossmaking in the first half and it expected earnings to remain severely under pressure.
S&P also downgraded Goldman Sachs and Morgan Stanley, raising questions about the ability of both investment banks to thrive after their conversion to bank holding companies.
But, of the two, S&P was more negative on the outlook for Morgan Stanley.
“We view Morgan Stanley as very much in a turnaround mode and we do see somewhat more potential for further deterioration there than at Goldman Sachs,” S&P credit analyst Scott Sprinzen said Friday.
Bank of America’s acquisition of Merrill Lynch also raised concerns, particularly since Merrill could generate more writedowns in commercial real estate and leveraged loans. Despite BofA’s history of integrating companies it acquired, “the purchase of Merrill Lynch carries unique integration risk”, the agency said.
By Jane Croft in London and Greg Farrell in New York
Published: December 19 2008 18:30 | Last updated: December 19 2008 18:30
Eleven of the world’s biggest banks were downgraded Friday by Standard & Poor’s after the ratings agency said the current downturn could be longer and deeper than previously thought.
Six major US banks were downgraded, including JPMorgan Chase, Bank of America and Wells Fargo, as well as five banks in Europe.
EDITOR’S CHOICE
In depth: European banks - Apr-10In depth: US banks - Oct-15Mixed response to Credit Suisse’s pay plan - Dec-19The agency cut its ratings on Citigroup, Morgan Stanley and Goldman Sachs by two notches each. In Europe, S&P shaved one notch off the ratings of Barclays, Credit Suisse, Deutsche Bank, Royal Bank of Scotland and UBS.
While the downgrades were driven in part by the worsening economic climate in the US and abroad, S&P noted specific causes for concern at each institution.
S&P analyst Tanya Azarchs said that, in addition to the economic woes, the banking sector’s “lax underwriting standards due to excess competition mean this cycle will be worse than prior cycles”.
UBS saw its rating fall from AA- to A+ as S&P highlighted the extremely high level of losses suffered by the Swiss bank since the start of the business cycle, reflecting “larger risk concentrations and weaker risk management than we had previously perceived”.
Deutsche Bank also saw its ratings lowered from AA- to A+ as S&P pointed out that it viewed asset quality “as likely to weaken materially and risk management to be weaker relative to risks”.
Barclays was downgraded from AA to AA- as S&P said that although Barclays had diversified its loan book many of its geographic exposures were in countries such as Spain and the UK, where it believed there was potential for a severe slowdown.
S&P also singled out Barclays’ increased exposure to capital markets from the acquisition of the former businesses of Lehman.
The agency also downgraded Royal Bank of Scotland from AA- to A+, despite the £20bn of capital it has received from the UK government. It said the bank had been lossmaking in the first half and it expected earnings to remain severely under pressure.
S&P also downgraded Goldman Sachs and Morgan Stanley, raising questions about the ability of both investment banks to thrive after their conversion to bank holding companies.
But, of the two, S&P was more negative on the outlook for Morgan Stanley.
“We view Morgan Stanley as very much in a turnaround mode and we do see somewhat more potential for further deterioration there than at Goldman Sachs,” S&P credit analyst Scott Sprinzen said Friday.
Bank of America’s acquisition of Merrill Lynch also raised concerns, particularly since Merrill could generate more writedowns in commercial real estate and leveraged loans. Despite BofA’s history of integrating companies it acquired, “the purchase of Merrill Lynch carries unique integration risk”, the agency said.
Thursday, December 18, 2008
Today's Gold Markets
I mentioned yesterday in my commentary that it would not be unexpected to see a bit of a respite in the savage Dollar mauling that has been taking place over the last week. Markets rarely tend to continue in moves of such extent without a bit of a pause for players to pocket profits unless they are in a parabolic blow off phase such as what we are seeing in the bond market. It should come as no surprise then to learn that last evening the monetary authorities of Japan began to surface after having been in hibernation for some time now only to make their usual noises about “excessive movements in the Forex markets”. That is code speak for “we do not like the strong yen”. Of course, that was enough to send yen buyers to the sidelines in a big hurry. I personally love the Japanese monetary authorities because they are so predictable. When you do not hear from them you begin to wonder if something is wrong with the universe.
Either way, their “verbal intervention” served to temporarily derail the yen which also seemed to take the steam out of most of the major currencies as well taking some off their best overnight levels and actually bringing some into negative territory. That was the signal for short-term oriented gold day traders to use the $880 level hit to go ahead and exit and book some paper profits. The selling there confirms $880 as the resistance level which will need to be bettered in order for gold to run to $900 or above. For now it is serving to cap upward momentum. My guess is that the bullion banks have surfaced at that level and some guys decided not to press them without a much weaker dollar especially with crude oil crashing down through the $40 level. OPEC had better attempt something fast or crude will be at $30 in a heartbeat. The good thing for the rest of us is that we can go out and buy some gas guzzlers again ( you know – those vehicles which actually can seat a normal family without shaping them into something resembling a can of packed sardines). Maybe this cheap gasoline can be the new bailout package for the auto industry.
The bond bubble continues expanding with no end in sight as traders are convinced that the Fed is going to be buying along the outer end of the curve. With support like that below the market, the path of least resistance is higher. Whether or not the Fed actually does such a thing is immaterial at this point – the very suggestion that they are going to do so is enough to actually accomplish their intentions. Doesn’t it amuse you how easily grown, “sophisticated” investors can be herded around by these pestilential central bankers? That crowd prides themselves on being able to decipher obtuse financial and economic signals unlike the rest of the ignorant peasants and dolts who constitute the mere working class. Yet it is this same smug and oftentimes arrogant crowd that are rounded up like witless sheep and sent off in the direction that their shepherd masters intend them to go. Oh well, it really doesn’t matter much as long as they can make money off of it so I suppose the image of being driven around like mindless idiots doesn’t particularly prove troublesome to them.
December gold deliveries continue with another 127 being issued and stopped this morning. That brings the total for the month to 13,170 or 1.317 million ounces. Warehouse supplies showed a sizeable drop yesterday which is nice to finally observe. Registered was down to 2.8 million ounces. Keep in mind that playing the paper gold game and expecting to beat the bullion banks at it is a fool’s dream. Unless the gold is removed and taken out of the warehouses, the Comex will never be a freely traded market. We know full well that the CFTC has been asleep at the wheel for a long time now so do not expect any help from that quarter. The only thing that the paper shorts fear and respect is a lack of physical metal –everything else is blithely and I might add, safely ignored. Hedge funds looking for a way to beat these parasites have the strategy laid out in front of them do so – the question is will they actually leave their black box algorithms long enough to think about this and implement it. Another Fifteen to Twenty thousand contracts taken and stopped would put an end to the bullion bank reign over the sand box. That is chump change in today’s markets especially when you consider that at one time the hedgies had well over 240,000 long positions early this year. The margin necessary to carry positions of such size is proof that the financial resources necessary to take delivery of the physical gold exists – the only question is whether or not the will do so does. The down side of things is that the hedgies have never proved to be resourceful or clever – how can they be when they have long ago delegated their thinking to their computers?
Many of you have no doubt seen the article about unprecedented gold demand in Europe – demand so great that the refiners in Switzerland cannot keep up with it. Reports like this, of which we have seen so many in recent weeks, just serve to underscore how completely disconnected from reality the Comex paper gold market has become. Gold bulls – are you listening….
Technically paper gold has confirmed resistance at the $880 level with support near $850 and below that at $838 - $835 basis February. A breach of $880 that can be maintained for more than a couple of hours targets $900 and above.
Open interest saw a sharp increase yesterday which reveals the presence of plenty of new buyers. However, most of those are sitting on a paper loss after this morning’s move lower. If enough dip buyers surface, they will be okay.
The mining shares followed through on their late day weakness in yesterday’s session as selling was evident from the opening bell this morning. The HUI and XAU have closed higher for the last 7 out of 8 days so a setback is not that big of a deal. I do want to see where the buying support on this dip emerges however as most of the major moving averages are trending solidly higher. There is some support in the HUI at 257 and again near the 247 level. The HUI remains above the 100 day even with today’s down session.
Next week volume and liquidity will probably begin to dry up meaning that the ingredients for lots of volatility will be in place. Get used to it between now and the beginning of the New Year.
Either way, their “verbal intervention” served to temporarily derail the yen which also seemed to take the steam out of most of the major currencies as well taking some off their best overnight levels and actually bringing some into negative territory. That was the signal for short-term oriented gold day traders to use the $880 level hit to go ahead and exit and book some paper profits. The selling there confirms $880 as the resistance level which will need to be bettered in order for gold to run to $900 or above. For now it is serving to cap upward momentum. My guess is that the bullion banks have surfaced at that level and some guys decided not to press them without a much weaker dollar especially with crude oil crashing down through the $40 level. OPEC had better attempt something fast or crude will be at $30 in a heartbeat. The good thing for the rest of us is that we can go out and buy some gas guzzlers again ( you know – those vehicles which actually can seat a normal family without shaping them into something resembling a can of packed sardines). Maybe this cheap gasoline can be the new bailout package for the auto industry.
The bond bubble continues expanding with no end in sight as traders are convinced that the Fed is going to be buying along the outer end of the curve. With support like that below the market, the path of least resistance is higher. Whether or not the Fed actually does such a thing is immaterial at this point – the very suggestion that they are going to do so is enough to actually accomplish their intentions. Doesn’t it amuse you how easily grown, “sophisticated” investors can be herded around by these pestilential central bankers? That crowd prides themselves on being able to decipher obtuse financial and economic signals unlike the rest of the ignorant peasants and dolts who constitute the mere working class. Yet it is this same smug and oftentimes arrogant crowd that are rounded up like witless sheep and sent off in the direction that their shepherd masters intend them to go. Oh well, it really doesn’t matter much as long as they can make money off of it so I suppose the image of being driven around like mindless idiots doesn’t particularly prove troublesome to them.
December gold deliveries continue with another 127 being issued and stopped this morning. That brings the total for the month to 13,170 or 1.317 million ounces. Warehouse supplies showed a sizeable drop yesterday which is nice to finally observe. Registered was down to 2.8 million ounces. Keep in mind that playing the paper gold game and expecting to beat the bullion banks at it is a fool’s dream. Unless the gold is removed and taken out of the warehouses, the Comex will never be a freely traded market. We know full well that the CFTC has been asleep at the wheel for a long time now so do not expect any help from that quarter. The only thing that the paper shorts fear and respect is a lack of physical metal –everything else is blithely and I might add, safely ignored. Hedge funds looking for a way to beat these parasites have the strategy laid out in front of them do so – the question is will they actually leave their black box algorithms long enough to think about this and implement it. Another Fifteen to Twenty thousand contracts taken and stopped would put an end to the bullion bank reign over the sand box. That is chump change in today’s markets especially when you consider that at one time the hedgies had well over 240,000 long positions early this year. The margin necessary to carry positions of such size is proof that the financial resources necessary to take delivery of the physical gold exists – the only question is whether or not the will do so does. The down side of things is that the hedgies have never proved to be resourceful or clever – how can they be when they have long ago delegated their thinking to their computers?
Many of you have no doubt seen the article about unprecedented gold demand in Europe – demand so great that the refiners in Switzerland cannot keep up with it. Reports like this, of which we have seen so many in recent weeks, just serve to underscore how completely disconnected from reality the Comex paper gold market has become. Gold bulls – are you listening….
Technically paper gold has confirmed resistance at the $880 level with support near $850 and below that at $838 - $835 basis February. A breach of $880 that can be maintained for more than a couple of hours targets $900 and above.
Open interest saw a sharp increase yesterday which reveals the presence of plenty of new buyers. However, most of those are sitting on a paper loss after this morning’s move lower. If enough dip buyers surface, they will be okay.
The mining shares followed through on their late day weakness in yesterday’s session as selling was evident from the opening bell this morning. The HUI and XAU have closed higher for the last 7 out of 8 days so a setback is not that big of a deal. I do want to see where the buying support on this dip emerges however as most of the major moving averages are trending solidly higher. There is some support in the HUI at 257 and again near the 247 level. The HUI remains above the 100 day even with today’s down session.
Next week volume and liquidity will probably begin to dry up meaning that the ingredients for lots of volatility will be in place. Get used to it between now and the beginning of the New Year.
Desperate FED
A Most Desperate Move by the Fed
Prof. Rodrigue Tremblay
Global Research
December 18, 2008
"In a crisis, discount and discount heavily."Walter Bagehot (1826-1877), British economist
"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs." Thomas Jefferson (1743-1826), 3rd U.S. President.
"By this means [printing money] government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft." John Maynard Keynes (1883-1946), British economist
On December 16 (2008), the Bernanke Fed took the most unusual step of lowering the overnight inter-bank lending rate, the federal funds rate, to a level never reached before, i.e. zero percent with an upside limit of 0.25 percent. It also announced that it will buy “large quantities of” mortgage-backed securities and is considering doing the same thing with Treasury bonds of longer maturities, in order to lower the entire yield curve. What it did not say explicitly is that the Fed is ready to debase the U.S. dollar to artificially low levels in order to reflate the U.S. economy. What the Fed wants is to trigger monetary inflation and change deflation expectations at all costs through large-scale debt monetisation and thus floating excess debts in a sea of newly created money.
Overall, what the Fed has done, in effect, is to announce that it is suspending the normal functioning of private credit and capital markets, according to supply and demand, and has decided to micro-manage such failing markets for the foreseeable future, that is to say as long as deflationary pressures, in its own view, persist in the U.S. economy. The Fed is also taking big chunks of ownership in large private U.S. banks in order to recapitalize them and to let them deleverage themselves in an orderly way.
People may want to know why the Fed went to that “socialist” extreme and what will be the financial and economic intended and unintended consequences?
A d v e r t i s e m e n t
First of all, let’s keep in mind that the Fed is the only central bank in the world that is partly public-owned and partly private-owned. Bankers sitting on the Fed board can make decisions to lend new money to themselves at whatever rate they choose. The entire American financial and fiscal system is run by bankers, either at the Fed or at the Treasury. Indeed, beginning on January 20 (2009), the Obama administration’s Treasury Secretary will be the current president of the New York Fed, Mr. Timothy Geithner, who will be replacing Secretary Henry Paulson, himself a former CEO of the Wall Street investment bank Goldman Sachs.
Although the U.S. President initiates and Congress approves the nominations of the seven members (currently only five in exercise) of the Federal Reserve Board of Governors (for a 14-year term), the de facto managing of the Fed is left to bankers. This is done through the Federal Open Market Committee (FOMC) which implements monetary policy through open market operations and other discounting policies and discount loans. It is comprised of the seven members of the Board of Governors and five presidents of the twelve Federal Reserve District Banks. The Chairman of the Fed Board is also the Chairman of the FOMC. The President of the New York Fed is always on the FOMC and acts as its Vice Chairman. [The remaining 4 fed member slots are shared and rotated among the remaining 11 District Banks. In fact, the presidents of all twelve Federal Reserve District Banks are present at the FOMC meetings, but only five are enabled to vote at any given time. But, since members of the Fed board often originate from the regional Fed banks or from private banks, bankers are often in the majority in deciding American monetary policy.]
Secondly, by taking over private financial markets, the Fed is, in effect, covering its own mistakes (and those of the SEC and of the U.S. Treasury) for having allowed the building up of a shaky pyramid of asset-backed securities (ABS), not the least being the toxic mortgage-backed securities, and the gambling-prone credit default swaps (CDS), that has been crumbling to the ground.
It is my feeling that the Fed, by creating a bond bubble, at this time is only postponing the day of reckoning and is buying time. When the bond bubble bursts, and believe me, it will burst, as all bubbles do, this will push the U.S. economy further down. For instance, when this happens, many capitalized pension funds could fail and many retirees could be then pushed toward poverty. Future spikes in interest rates will hurt investments and damage the economy even more.
Meanwhile, a bout of competing currency devaluations has been launched, since other governments and other central banks will have to try to debase their own currencies if they want to avoid importing the worst of the U.S. economic downturn. This will be reminiscent of what happened during the 1930s economic depression. Not a pretty perspective for the future of fiat currencies.
It seems that the Fed has an uncanny talent for creating financial and economic bubbles. In the late 1990s, after the Asian financial crisis and after the near failure of the hedge fund Long-Term Capital Management (LTCM), in September 1998, the Greenspan Fed flooded the U.S. economy with liquidity and created the 2000 tech bubble. The same Greenspan Fed aggressively lowered the Federal Funds rate from 6.5 percent to 1 percent in 2004, thus paving the way to the worst housing bubble in American history. Now, the Bernanke Fed is at it again, and, by lowering the federal funds rate to close to zero and by announcing that it stands ready to monetize U.S. Treasury debt, it is actively blowing into what has the appearance of one of the worst bond bubbles ever.
Of course, the Fed has bestowed so much money on banks in exchange for their bad debts while the banks themselves are unwilling to lend, that U.S. banks’ excess reserves at the Fed have exploded to more than half a trillion (November ‘08), which is ten times what is required. This is a sign that the U.S. economy is currently in a liquidity trap.
There is a lot of money in the system, but it is not circulating. The velocity of money is down. In such a situation of excess liquidity, when the Fed creates more liquidity, it is like pushing on a string. Therefore, by lowering short-term interest rates to close to zero, the Fed is helping itself before helping others, since it will be paying less interest on Banks’ excess reserves, most of which came from the Fed anyhow. Some of the excess liquidity can spill into the stock market and lift all boats for a while. However, the true test of the Fed’s recent desperate move will be if banks increase their lending. We shall know in due course.
Prof. Rodrigue Tremblay
Global Research
December 18, 2008
"In a crisis, discount and discount heavily."Walter Bagehot (1826-1877), British economist
"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs." Thomas Jefferson (1743-1826), 3rd U.S. President.
"By this means [printing money] government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft." John Maynard Keynes (1883-1946), British economist
On December 16 (2008), the Bernanke Fed took the most unusual step of lowering the overnight inter-bank lending rate, the federal funds rate, to a level never reached before, i.e. zero percent with an upside limit of 0.25 percent. It also announced that it will buy “large quantities of” mortgage-backed securities and is considering doing the same thing with Treasury bonds of longer maturities, in order to lower the entire yield curve. What it did not say explicitly is that the Fed is ready to debase the U.S. dollar to artificially low levels in order to reflate the U.S. economy. What the Fed wants is to trigger monetary inflation and change deflation expectations at all costs through large-scale debt monetisation and thus floating excess debts in a sea of newly created money.
Overall, what the Fed has done, in effect, is to announce that it is suspending the normal functioning of private credit and capital markets, according to supply and demand, and has decided to micro-manage such failing markets for the foreseeable future, that is to say as long as deflationary pressures, in its own view, persist in the U.S. economy. The Fed is also taking big chunks of ownership in large private U.S. banks in order to recapitalize them and to let them deleverage themselves in an orderly way.
People may want to know why the Fed went to that “socialist” extreme and what will be the financial and economic intended and unintended consequences?
A d v e r t i s e m e n t
First of all, let’s keep in mind that the Fed is the only central bank in the world that is partly public-owned and partly private-owned. Bankers sitting on the Fed board can make decisions to lend new money to themselves at whatever rate they choose. The entire American financial and fiscal system is run by bankers, either at the Fed or at the Treasury. Indeed, beginning on January 20 (2009), the Obama administration’s Treasury Secretary will be the current president of the New York Fed, Mr. Timothy Geithner, who will be replacing Secretary Henry Paulson, himself a former CEO of the Wall Street investment bank Goldman Sachs.
Although the U.S. President initiates and Congress approves the nominations of the seven members (currently only five in exercise) of the Federal Reserve Board of Governors (for a 14-year term), the de facto managing of the Fed is left to bankers. This is done through the Federal Open Market Committee (FOMC) which implements monetary policy through open market operations and other discounting policies and discount loans. It is comprised of the seven members of the Board of Governors and five presidents of the twelve Federal Reserve District Banks. The Chairman of the Fed Board is also the Chairman of the FOMC. The President of the New York Fed is always on the FOMC and acts as its Vice Chairman. [The remaining 4 fed member slots are shared and rotated among the remaining 11 District Banks. In fact, the presidents of all twelve Federal Reserve District Banks are present at the FOMC meetings, but only five are enabled to vote at any given time. But, since members of the Fed board often originate from the regional Fed banks or from private banks, bankers are often in the majority in deciding American monetary policy.]
Secondly, by taking over private financial markets, the Fed is, in effect, covering its own mistakes (and those of the SEC and of the U.S. Treasury) for having allowed the building up of a shaky pyramid of asset-backed securities (ABS), not the least being the toxic mortgage-backed securities, and the gambling-prone credit default swaps (CDS), that has been crumbling to the ground.
It is my feeling that the Fed, by creating a bond bubble, at this time is only postponing the day of reckoning and is buying time. When the bond bubble bursts, and believe me, it will burst, as all bubbles do, this will push the U.S. economy further down. For instance, when this happens, many capitalized pension funds could fail and many retirees could be then pushed toward poverty. Future spikes in interest rates will hurt investments and damage the economy even more.
Meanwhile, a bout of competing currency devaluations has been launched, since other governments and other central banks will have to try to debase their own currencies if they want to avoid importing the worst of the U.S. economic downturn. This will be reminiscent of what happened during the 1930s economic depression. Not a pretty perspective for the future of fiat currencies.
It seems that the Fed has an uncanny talent for creating financial and economic bubbles. In the late 1990s, after the Asian financial crisis and after the near failure of the hedge fund Long-Term Capital Management (LTCM), in September 1998, the Greenspan Fed flooded the U.S. economy with liquidity and created the 2000 tech bubble. The same Greenspan Fed aggressively lowered the Federal Funds rate from 6.5 percent to 1 percent in 2004, thus paving the way to the worst housing bubble in American history. Now, the Bernanke Fed is at it again, and, by lowering the federal funds rate to close to zero and by announcing that it stands ready to monetize U.S. Treasury debt, it is actively blowing into what has the appearance of one of the worst bond bubbles ever.
Of course, the Fed has bestowed so much money on banks in exchange for their bad debts while the banks themselves are unwilling to lend, that U.S. banks’ excess reserves at the Fed have exploded to more than half a trillion (November ‘08), which is ten times what is required. This is a sign that the U.S. economy is currently in a liquidity trap.
There is a lot of money in the system, but it is not circulating. The velocity of money is down. In such a situation of excess liquidity, when the Fed creates more liquidity, it is like pushing on a string. Therefore, by lowering short-term interest rates to close to zero, the Fed is helping itself before helping others, since it will be paying less interest on Banks’ excess reserves, most of which came from the Fed anyhow. Some of the excess liquidity can spill into the stock market and lift all boats for a while. However, the true test of the Fed’s recent desperate move will be if banks increase their lending. We shall know in due course.
Desperate FED
A Most Desperate Move by the Fed
Prof. Rodrigue Tremblay
Global Research
December 18, 2008
"In a crisis, discount and discount heavily."Walter Bagehot (1826-1877), British economist
"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs." Thomas Jefferson (1743-1826), 3rd U.S. President.
"By this means [printing money] government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft." John Maynard Keynes (1883-1946), British economist
On December 16 (2008), the Bernanke Fed took the most unusual step of lowering the overnight inter-bank lending rate, the federal funds rate, to a level never reached before, i.e. zero percent with an upside limit of 0.25 percent. It also announced that it will buy “large quantities of” mortgage-backed securities and is considering doing the same thing with Treasury bonds of longer maturities, in order to lower the entire yield curve. What it did not say explicitly is that the Fed is ready to debase the U.S. dollar to artificially low levels in order to reflate the U.S. economy. What the Fed wants is to trigger monetary inflation and change deflation expectations at all costs through large-scale debt monetisation and thus floating excess debts in a sea of newly created money.
Overall, what the Fed has done, in effect, is to announce that it is suspending the normal functioning of private credit and capital markets, according to supply and demand, and has decided to micro-manage such failing markets for the foreseeable future, that is to say as long as deflationary pressures, in its own view, persist in the U.S. economy. The Fed is also taking big chunks of ownership in large private U.S. banks in order to recapitalize them and to let them deleverage themselves in an orderly way.
People may want to know why the Fed went to that “socialist” extreme and what will be the financial and economic intended and unintended consequences?
A d v e r t i s e m e n t
First of all, let’s keep in mind that the Fed is the only central bank in the world that is partly public-owned and partly private-owned. Bankers sitting on the Fed board can make decisions to lend new money to themselves at whatever rate they choose. The entire American financial and fiscal system is run by bankers, either at the Fed or at the Treasury. Indeed, beginning on January 20 (2009), the Obama administration’s Treasury Secretary will be the current president of the New York Fed, Mr. Timothy Geithner, who will be replacing Secretary Henry Paulson, himself a former CEO of the Wall Street investment bank Goldman Sachs.
Although the U.S. President initiates and Congress approves the nominations of the seven members (currently only five in exercise) of the Federal Reserve Board of Governors (for a 14-year term), the de facto managing of the Fed is left to bankers. This is done through the Federal Open Market Committee (FOMC) which implements monetary policy through open market operations and other discounting policies and discount loans. It is comprised of the seven members of the Board of Governors and five presidents of the twelve Federal Reserve District Banks. The Chairman of the Fed Board is also the Chairman of the FOMC. The President of the New York Fed is always on the FOMC and acts as its Vice Chairman. [The remaining 4 fed member slots are shared and rotated among the remaining 11 District Banks. In fact, the presidents of all twelve Federal Reserve District Banks are present at the FOMC meetings, but only five are enabled to vote at any given time. But, since members of the Fed board often originate from the regional Fed banks or from private banks, bankers are often in the majority in deciding American monetary policy.]
Secondly, by taking over private financial markets, the Fed is, in effect, covering its own mistakes (and those of the SEC and of the U.S. Treasury) for having allowed the building up of a shaky pyramid of asset-backed securities (ABS), not the least being the toxic mortgage-backed securities, and the gambling-prone credit default swaps (CDS), that has been crumbling to the ground.
It is my feeling that the Fed, by creating a bond bubble, at this time is only postponing the day of reckoning and is buying time. When the bond bubble bursts, and believe me, it will burst, as all bubbles do, this will push the U.S. economy further down. For instance, when this happens, many capitalized pension funds could fail and many retirees could be then pushed toward poverty. Future spikes in interest rates will hurt investments and damage the economy even more.
Meanwhile, a bout of competing currency devaluations has been launched, since other governments and other central banks will have to try to debase their own currencies if they want to avoid importing the worst of the U.S. economic downturn. This will be reminiscent of what happened during the 1930s economic depression. Not a pretty perspective for the future of fiat currencies.
It seems that the Fed has an uncanny talent for creating financial and economic bubbles. In the late 1990s, after the Asian financial crisis and after the near failure of the hedge fund Long-Term Capital Management (LTCM), in September 1998, the Greenspan Fed flooded the U.S. economy with liquidity and created the 2000 tech bubble. The same Greenspan Fed aggressively lowered the Federal Funds rate from 6.5 percent to 1 percent in 2004, thus paving the way to the worst housing bubble in American history. Now, the Bernanke Fed is at it again, and, by lowering the federal funds rate to close to zero and by announcing that it stands ready to monetize U.S. Treasury debt, it is actively blowing into what has the appearance of one of the worst bond bubbles ever.
Of course, the Fed has bestowed so much money on banks in exchange for their bad debts while the banks themselves are unwilling to lend, that U.S. banks’ excess reserves at the Fed have exploded to more than half a trillion (November ‘08), which is ten times what is required. This is a sign that the U.S. economy is currently in a liquidity trap.
There is a lot of money in the system, but it is not circulating. The velocity of money is down. In such a situation of excess liquidity, when the Fed creates more liquidity, it is like pushing on a string. Therefore, by lowering short-term interest rates to close to zero, the Fed is helping itself before helping others, since it will be paying less interest on Banks’ excess reserves, most of which came from the Fed anyhow. Some of the excess liquidity can spill into the stock market and lift all boats for a while. However, the true test of the Fed’s recent desperate move will be if banks increase their lending. We shall know in due course.
Prof. Rodrigue Tremblay
Global Research
December 18, 2008
"In a crisis, discount and discount heavily."Walter Bagehot (1826-1877), British economist
"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs." Thomas Jefferson (1743-1826), 3rd U.S. President.
"By this means [printing money] government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft." John Maynard Keynes (1883-1946), British economist
On December 16 (2008), the Bernanke Fed took the most unusual step of lowering the overnight inter-bank lending rate, the federal funds rate, to a level never reached before, i.e. zero percent with an upside limit of 0.25 percent. It also announced that it will buy “large quantities of” mortgage-backed securities and is considering doing the same thing with Treasury bonds of longer maturities, in order to lower the entire yield curve. What it did not say explicitly is that the Fed is ready to debase the U.S. dollar to artificially low levels in order to reflate the U.S. economy. What the Fed wants is to trigger monetary inflation and change deflation expectations at all costs through large-scale debt monetisation and thus floating excess debts in a sea of newly created money.
Overall, what the Fed has done, in effect, is to announce that it is suspending the normal functioning of private credit and capital markets, according to supply and demand, and has decided to micro-manage such failing markets for the foreseeable future, that is to say as long as deflationary pressures, in its own view, persist in the U.S. economy. The Fed is also taking big chunks of ownership in large private U.S. banks in order to recapitalize them and to let them deleverage themselves in an orderly way.
People may want to know why the Fed went to that “socialist” extreme and what will be the financial and economic intended and unintended consequences?
A d v e r t i s e m e n t
First of all, let’s keep in mind that the Fed is the only central bank in the world that is partly public-owned and partly private-owned. Bankers sitting on the Fed board can make decisions to lend new money to themselves at whatever rate they choose. The entire American financial and fiscal system is run by bankers, either at the Fed or at the Treasury. Indeed, beginning on January 20 (2009), the Obama administration’s Treasury Secretary will be the current president of the New York Fed, Mr. Timothy Geithner, who will be replacing Secretary Henry Paulson, himself a former CEO of the Wall Street investment bank Goldman Sachs.
Although the U.S. President initiates and Congress approves the nominations of the seven members (currently only five in exercise) of the Federal Reserve Board of Governors (for a 14-year term), the de facto managing of the Fed is left to bankers. This is done through the Federal Open Market Committee (FOMC) which implements monetary policy through open market operations and other discounting policies and discount loans. It is comprised of the seven members of the Board of Governors and five presidents of the twelve Federal Reserve District Banks. The Chairman of the Fed Board is also the Chairman of the FOMC. The President of the New York Fed is always on the FOMC and acts as its Vice Chairman. [The remaining 4 fed member slots are shared and rotated among the remaining 11 District Banks. In fact, the presidents of all twelve Federal Reserve District Banks are present at the FOMC meetings, but only five are enabled to vote at any given time. But, since members of the Fed board often originate from the regional Fed banks or from private banks, bankers are often in the majority in deciding American monetary policy.]
Secondly, by taking over private financial markets, the Fed is, in effect, covering its own mistakes (and those of the SEC and of the U.S. Treasury) for having allowed the building up of a shaky pyramid of asset-backed securities (ABS), not the least being the toxic mortgage-backed securities, and the gambling-prone credit default swaps (CDS), that has been crumbling to the ground.
It is my feeling that the Fed, by creating a bond bubble, at this time is only postponing the day of reckoning and is buying time. When the bond bubble bursts, and believe me, it will burst, as all bubbles do, this will push the U.S. economy further down. For instance, when this happens, many capitalized pension funds could fail and many retirees could be then pushed toward poverty. Future spikes in interest rates will hurt investments and damage the economy even more.
Meanwhile, a bout of competing currency devaluations has been launched, since other governments and other central banks will have to try to debase their own currencies if they want to avoid importing the worst of the U.S. economic downturn. This will be reminiscent of what happened during the 1930s economic depression. Not a pretty perspective for the future of fiat currencies.
It seems that the Fed has an uncanny talent for creating financial and economic bubbles. In the late 1990s, after the Asian financial crisis and after the near failure of the hedge fund Long-Term Capital Management (LTCM), in September 1998, the Greenspan Fed flooded the U.S. economy with liquidity and created the 2000 tech bubble. The same Greenspan Fed aggressively lowered the Federal Funds rate from 6.5 percent to 1 percent in 2004, thus paving the way to the worst housing bubble in American history. Now, the Bernanke Fed is at it again, and, by lowering the federal funds rate to close to zero and by announcing that it stands ready to monetize U.S. Treasury debt, it is actively blowing into what has the appearance of one of the worst bond bubbles ever.
Of course, the Fed has bestowed so much money on banks in exchange for their bad debts while the banks themselves are unwilling to lend, that U.S. banks’ excess reserves at the Fed have exploded to more than half a trillion (November ‘08), which is ten times what is required. This is a sign that the U.S. economy is currently in a liquidity trap.
There is a lot of money in the system, but it is not circulating. The velocity of money is down. In such a situation of excess liquidity, when the Fed creates more liquidity, it is like pushing on a string. Therefore, by lowering short-term interest rates to close to zero, the Fed is helping itself before helping others, since it will be paying less interest on Banks’ excess reserves, most of which came from the Fed anyhow. Some of the excess liquidity can spill into the stock market and lift all boats for a while. However, the true test of the Fed’s recent desperate move will be if banks increase their lending. We shall know in due course.
Print More Money
Today’s New York Times spells out in stark black and white the government plan.
IN OUR OPINON THIS PLAN IS A VERY POSITIVE CATALYST FOR GOLD AND FOREIGN CURENCIES TO CONTINUE TO RISE FOR A PROLONGED PERIOD.
May I quote From a front page NYT article entitled “In A Bold Action, Fed Cuts A Key Rate To Virtually Zero”
“…Of much greater practical importance, the Fed bluntly announced that it would print a much money as necessary to revive the frozen credit markets and fight what is shaping up as the nation’s worst economic downturn since World War 2.”
THAT SAYS SOMETHING LOUD AND CLEAR
May I translate: In my opinion, they are saying we want to liquidify the banking system, and we want to do it now. We know that there will be consequences such as a lower US dollar and more inflation. We are just as happy that the dollar is falling - this will help with exports. We are not happy that inflation will rise, but that is a necessary side effect of bringing liquidity back to the banking system so be it. We will deal with the inflation problem later.
Of course dealing with inflation after it becomes imbedded may be another equally intransigent problem.
IN OUR OPINON THIS PLAN IS A VERY POSITIVE CATALYST FOR GOLD AND FOREIGN CURENCIES TO CONTINUE TO RISE FOR A PROLONGED PERIOD.
May I quote From a front page NYT article entitled “In A Bold Action, Fed Cuts A Key Rate To Virtually Zero”
“…Of much greater practical importance, the Fed bluntly announced that it would print a much money as necessary to revive the frozen credit markets and fight what is shaping up as the nation’s worst economic downturn since World War 2.”
THAT SAYS SOMETHING LOUD AND CLEAR
May I translate: In my opinion, they are saying we want to liquidify the banking system, and we want to do it now. We know that there will be consequences such as a lower US dollar and more inflation. We are just as happy that the dollar is falling - this will help with exports. We are not happy that inflation will rise, but that is a necessary side effect of bringing liquidity back to the banking system so be it. We will deal with the inflation problem later.
Of course dealing with inflation after it becomes imbedded may be another equally intransigent problem.
Wednesday, December 17, 2008
What this world needs in a good 2 cent dollar
Dec. 17 (Bloomberg) -- The world’s biggest currency-trading firms say the dollar’s appeal as a haven amid the financial crisis all but evaporated.
The U.S. currency slid to a 13-year low against the yen today and had its biggest one-day decline versus the euro after the Federal Reserve reduced its target interest rate yesterday to a range of zero to 0.25 percent, the lowest among the world’s biggest economies. CMC Markets said today the currency’s prospects appear “ominous.” State Street Global markets said the dollar’s outlook has been “undermined.”
“The dollar has been under heavy downward pressure,” said Robert Minikin, a senior currency strategist in London at Standard Chartered Bank Plc. “This move is very well-justified and has a long way to run.” Standard Chartered is preparing to cut its dollar forecasts, Minikin said.
Yesterday’s rate cut brings the Fed’s target to below the Bank of Japan’s for the first time since January 1993. U.S. policy makers repeated plans to buy agency debt and mortgage- backed securities and said they will study buying Treasuries, a policy known as quantitative easing.
The dollar fell to 87.14 yen, the lowest since July 1995, before trading at 87.45 yen as of 3:51 p.m. in New York, from 89.05 yesterday. It depreciated to $1.4437 per euro from $1.4002 and traded at $1.4366, the weakest since Sept. 30.
‘Ominous’ Outlook
The dollar is likely to decline “longer term,” analysts including New York-based Ashraf Laidi at CMC Markets wrote in a report. “Prospects ahead appear particularly ominous for the world’s reserve currency once global economic stability starts to build up.”
The Fed’s debt purchases will cause the dollar to weaken to $1.4860 per euro, analysts led by Robert Sinche, New York-based head of global currency strategy at Bank of America Corp., wrote in a report yesterday. The Fed reduced the scarcity of dollars and investors slowed the deleveraging process, which drove the currency to a 2 1/2-year high against the euro in October, Sinche said.
“Those temporary supports for the dollar appear to have eroded,” Sinche wrote. “Aggressive quantitative easing by the Fed should add to U.S. dollar supply globally and undermine the value of the dollar.”
State Street Global Markets, a unit of the world’s largest money manager for institutions, said the Fed’s move is “perilous” for the dollar as investors accumulated an “extreme” long position on the currency, or bets it will climb.
Record Low Yields
“This implies a significant potential for a dollar unwind if the real money community attempts to chase price,” Hong Kong-based strategist Dwyfor Evans wrote today in a report. The shift toward quantitative easing “has undermined the U.S. dollar significantly over recent weeks.”
The dollar’s decline against the euro compares with a similar move in the early 1990s, indicating the U.S. currency may weaken to a record low of $1.65 late next year, Citigroup Inc. strategists Tom Fitzpatrick in New York and Shyam Devani in London wrote in a research note.
“If it walks like a duck and talks like a duck … it’s a duck,” Fitzpatrick and Devani wrote. “The dollar walks and talks like a currency going back into its bear market.”
The dollar declined 11 percent against the euro and 8 percent against the yen this month as yields on two-, five-, 10- and 30-year Treasuries fell to record lows, encouraging investors to look outside the U.S. for higher returns.
“The dollar is going to struggle while it has low yields,” said Roddy MacPherson, the Edinburgh-based head of currency strategy at Scottish Widows Investment Partnership Ltd., which manages the equivalent of $152 billion. “We’re looking to add to our short dollar position if U.S. yields continue downward.”
UBS Stays Bullish
MacPherson said he moved toward a short dollar position, or a bet it will depreciate, against the euro in the past four days. The currency may end next year at $1.40 per euro, he said.
For UBS AG, the world’s second-largest foreign-exchange trader, demand for cash amid the freeze in bank lending will support the currency. The Libor-OIS spread, a gauge of cash scarcity favored by former Fed Chairman Alan Greenspan, was at 140 basis points today, or about 14 times its average in the five years before the credit crisis began.
“There is still a premium on liquidity, which will be supportive to the dollar even in the current environment,” said Geoff Kendrick, a senior strategist in London at UBS.
Goldman Sachs Group Inc. said investors can profit from the dollar’s decline by selling the currency for its Canadian counterpart.
The U.S. currency’s drop is becoming “broader-based,” Jens Nordvig, a New York-based strategist for the U.S. securities firm, wrote today. “Temporary dollar demand from deleveraging and funding flows has come to an end. The prospect of aggressive quantitative easing is starting to have a significant negative impact on the dollar.”
The U.S. currency slid to a 13-year low against the yen today and had its biggest one-day decline versus the euro after the Federal Reserve reduced its target interest rate yesterday to a range of zero to 0.25 percent, the lowest among the world’s biggest economies. CMC Markets said today the currency’s prospects appear “ominous.” State Street Global markets said the dollar’s outlook has been “undermined.”
“The dollar has been under heavy downward pressure,” said Robert Minikin, a senior currency strategist in London at Standard Chartered Bank Plc. “This move is very well-justified and has a long way to run.” Standard Chartered is preparing to cut its dollar forecasts, Minikin said.
Yesterday’s rate cut brings the Fed’s target to below the Bank of Japan’s for the first time since January 1993. U.S. policy makers repeated plans to buy agency debt and mortgage- backed securities and said they will study buying Treasuries, a policy known as quantitative easing.
The dollar fell to 87.14 yen, the lowest since July 1995, before trading at 87.45 yen as of 3:51 p.m. in New York, from 89.05 yesterday. It depreciated to $1.4437 per euro from $1.4002 and traded at $1.4366, the weakest since Sept. 30.
‘Ominous’ Outlook
The dollar is likely to decline “longer term,” analysts including New York-based Ashraf Laidi at CMC Markets wrote in a report. “Prospects ahead appear particularly ominous for the world’s reserve currency once global economic stability starts to build up.”
The Fed’s debt purchases will cause the dollar to weaken to $1.4860 per euro, analysts led by Robert Sinche, New York-based head of global currency strategy at Bank of America Corp., wrote in a report yesterday. The Fed reduced the scarcity of dollars and investors slowed the deleveraging process, which drove the currency to a 2 1/2-year high against the euro in October, Sinche said.
“Those temporary supports for the dollar appear to have eroded,” Sinche wrote. “Aggressive quantitative easing by the Fed should add to U.S. dollar supply globally and undermine the value of the dollar.”
State Street Global Markets, a unit of the world’s largest money manager for institutions, said the Fed’s move is “perilous” for the dollar as investors accumulated an “extreme” long position on the currency, or bets it will climb.
Record Low Yields
“This implies a significant potential for a dollar unwind if the real money community attempts to chase price,” Hong Kong-based strategist Dwyfor Evans wrote today in a report. The shift toward quantitative easing “has undermined the U.S. dollar significantly over recent weeks.”
The dollar’s decline against the euro compares with a similar move in the early 1990s, indicating the U.S. currency may weaken to a record low of $1.65 late next year, Citigroup Inc. strategists Tom Fitzpatrick in New York and Shyam Devani in London wrote in a research note.
“If it walks like a duck and talks like a duck … it’s a duck,” Fitzpatrick and Devani wrote. “The dollar walks and talks like a currency going back into its bear market.”
The dollar declined 11 percent against the euro and 8 percent against the yen this month as yields on two-, five-, 10- and 30-year Treasuries fell to record lows, encouraging investors to look outside the U.S. for higher returns.
“The dollar is going to struggle while it has low yields,” said Roddy MacPherson, the Edinburgh-based head of currency strategy at Scottish Widows Investment Partnership Ltd., which manages the equivalent of $152 billion. “We’re looking to add to our short dollar position if U.S. yields continue downward.”
UBS Stays Bullish
MacPherson said he moved toward a short dollar position, or a bet it will depreciate, against the euro in the past four days. The currency may end next year at $1.40 per euro, he said.
For UBS AG, the world’s second-largest foreign-exchange trader, demand for cash amid the freeze in bank lending will support the currency. The Libor-OIS spread, a gauge of cash scarcity favored by former Fed Chairman Alan Greenspan, was at 140 basis points today, or about 14 times its average in the five years before the credit crisis began.
“There is still a premium on liquidity, which will be supportive to the dollar even in the current environment,” said Geoff Kendrick, a senior strategist in London at UBS.
Goldman Sachs Group Inc. said investors can profit from the dollar’s decline by selling the currency for its Canadian counterpart.
The U.S. currency’s drop is becoming “broader-based,” Jens Nordvig, a New York-based strategist for the U.S. securities firm, wrote today. “Temporary dollar demand from deleveraging and funding flows has come to an end. The prospect of aggressive quantitative easing is starting to have a significant negative impact on the dollar.”
Norway Safest Government Debt
Norway safest govt debt investment, Ecuador riskiest -study
Tuesday, December 16, 2008 2:14:06 AM (GMT-08:00)
Provided by: Reuters News
LONDON: The country least likely to default on its sovereign debt in the next five years is Norway and the country most likely to is Ecuador, according to a study by data provider CMA Datavision.
Using an "industry standard" model and its own credit default swap (CDS) pricing data, CMA Datavision says the cumulative probability of default (CPD) for Norway over the period is three percent, and 93 percent for Ecuador.
The United States’ CPD is six percent, making it the sixth most financially stable sovereign behind Norway, Japan, Germany, France and Finland.
Argentina, Ukraine, Pakistan and Venezuela all have a CPD of 80 percent or higher, according to the study.
The cost of insuring against governments defaulting on their debt has ballooned in recent months as the global economic downturn has forced them to announce heavy borrowing plans to pay for large-scale fiscal packages of spending and tax cuts.
The CDS rates on US, UK and most euro zone sovereign debt have hit record highs recently. Looking at CDS pricing in isolation, investors are paying more to insure against the UK government defaulting than McDonald’s.
Tuesday, December 16, 2008 2:14:06 AM (GMT-08:00)
Provided by: Reuters News
LONDON: The country least likely to default on its sovereign debt in the next five years is Norway and the country most likely to is Ecuador, according to a study by data provider CMA Datavision.
Using an "industry standard" model and its own credit default swap (CDS) pricing data, CMA Datavision says the cumulative probability of default (CPD) for Norway over the period is three percent, and 93 percent for Ecuador.
The United States’ CPD is six percent, making it the sixth most financially stable sovereign behind Norway, Japan, Germany, France and Finland.
Argentina, Ukraine, Pakistan and Venezuela all have a CPD of 80 percent or higher, according to the study.
The cost of insuring against governments defaulting on their debt has ballooned in recent months as the global economic downturn has forced them to announce heavy borrowing plans to pay for large-scale fiscal packages of spending and tax cuts.
The CDS rates on US, UK and most euro zone sovereign debt have hit record highs recently. Looking at CDS pricing in isolation, investors are paying more to insure against the UK government defaulting than McDonald’s.
Swiss Gold Rush
Nervy investors spur rush at Swiss gold refiners
By Arnd Wiegmann and Lisa Jucca
Reuters
Tuesday, December 16, 2008; 9:56 PM
MENDRISIO/ZURICH, Switzerland (Reuters) - Sealed off by grey concrete walls and barbed wire, the workmen in protective glasses and steel-toed boots at this smelter cannot work fast enough to meet demand from the nervous rich for gold.
This refinery near Lake Lugano in the Alps is running day and night as people worried about recession rush to switch their assets into something that may hold its value.
"I have been in the gold business for 30 years and I have never experienced anything like this," said Bernhard Schnellmann, director for precious metal services at the refiner Argor-Heraeus, one of the world's three largest.
"Production has dramatically increased since the middle of the year. We cannot cope with demand," said Schnellman, wearing a gold watch on his wrist.
Spot gold hit a record $1,030.80 an ounce on March 17. It fell below $700 in late October, partly because investors sold their holdings to cover losses in equity and bond markets hit by the credit crisis, and is now around $830 an ounce.
The trigger for the price to rise again could come from a much weaker dollar, making gold cheaper for holders of other currencies, and a renewed aversion to paper assets as governments and central banks pump large amounts of cash into the economy, stoking inflation.
Smoke billows as the molten gold, like glowing butter, is poured. To cool it, the worker drops it into water. It hisses as it hits. Once hardened in moulds, the gold bars are embossed with the refinery's seal. Workers wearing white gloves stack them into boxes like domino pieces.
Though Switzerland is not a gold miner, it is home to some of the world's largest refineries, which process an estimated 40 percent of all newly mined gold.
Argor-Heraeus is part-owned by the Austrian Mint and a subsidiary of Germany's Commerzbank. Commercial and central banks are its chief customers and it says it processes some 350-400 tonnes of gold and 350 tonnes of silver per year.
Customers buying gold bars, which can weigh more than 10 kg each, have to wait roughly a month, taking into account the year-end holiday season.
For those buying coins or ingots, which can fit into the palm of a hand, the delay is six to eight weeks. A year ago, these small products could be had within a couple of days.
Worries about the banking system globally have boosted worldwide demand for physical gold, the Gold Council said.
"Many (people) are afraid of leaving their money in banks," said Sandra Conway, managing director at ATS Bullion in London, which sells bullion and gold coins to institutions and the retail market.
"It's difficult to quantify, but I would say our turnover over the last three months has certainly doubled compared to the previous three months," she said.
FULL CAPACITY
Other Swiss gold refiners also say business is booming.
"Since the summer we have experienced a sharp rise in demand for certain gold products. The one-kilo bar has become very popular," said Fiorenzo Arbini, in charge of health and safety at Pamp, another large Swiss refiner.
"People used to buy certificates, now they want physical gold."
Schnellmann said the Argor-Heraeus smelter is operating at full capacity, three eight-hour shifts a day. Conquering the backlog by hiring is difficult, because each candidate has to undergo a security check.
Gold refiners were established in Switzerland to supply the watch industry and, later, jewelry-makers in Italy.
Switzerland's largest banks stepped in to replace a void in gold trading while the London gold market was shut after World War Two and again during a brief closure in 1968.
The former Soviet Union, another top gold producer, chose Zurich banks to handle most of its gold sales in the 1970s and 1980s.
"Gold has an image of being the asset of last resort. This could be viewed as old-fashioned but this is how enough people with enough money to matter think," said Stephen Briggs, a metals strategist at RBS Global Banking & Markets.
GOLD TOUCH
India, China and the Middle East remain the biggest gold importers, particularly for jewelry. But demand for physical gold has exploded also in Europe, the Gold Council said.
In Switzerland, home to the world's largest private banking industry, demand for gold bars and coins shot up six-fold to 21 tonnes in the third quarter of 2008, more than in any other European country.
Retail investment in gold rose 121 percent in the third quarter of 2008, an important contributor to the overall increase in global demand, the Gold Council said.
In that period purchases of gold bars by retail investors, who often buy through commercial banks, rose nearly 60 percent, notably in Switzerland, Germany, and the United States.
There was a surge of interest among professional investors shortly after the collapse of Lehman Brothers in September.
Private bank Julius Baer in October launched a fund to invest exclusively in gold bars stored in highly secured vaults in Switzerland.
"The fascination with gold has been there since the beginning of civilization," said Schnellmann. "It cannot be explained: you can't eat gold, you cannot build anything resistant with it and yet people want to hoard it."
By Arnd Wiegmann and Lisa Jucca
Reuters
Tuesday, December 16, 2008; 9:56 PM
MENDRISIO/ZURICH, Switzerland (Reuters) - Sealed off by grey concrete walls and barbed wire, the workmen in protective glasses and steel-toed boots at this smelter cannot work fast enough to meet demand from the nervous rich for gold.
This refinery near Lake Lugano in the Alps is running day and night as people worried about recession rush to switch their assets into something that may hold its value.
"I have been in the gold business for 30 years and I have never experienced anything like this," said Bernhard Schnellmann, director for precious metal services at the refiner Argor-Heraeus, one of the world's three largest.
"Production has dramatically increased since the middle of the year. We cannot cope with demand," said Schnellman, wearing a gold watch on his wrist.
Spot gold hit a record $1,030.80 an ounce on March 17. It fell below $700 in late October, partly because investors sold their holdings to cover losses in equity and bond markets hit by the credit crisis, and is now around $830 an ounce.
The trigger for the price to rise again could come from a much weaker dollar, making gold cheaper for holders of other currencies, and a renewed aversion to paper assets as governments and central banks pump large amounts of cash into the economy, stoking inflation.
Smoke billows as the molten gold, like glowing butter, is poured. To cool it, the worker drops it into water. It hisses as it hits. Once hardened in moulds, the gold bars are embossed with the refinery's seal. Workers wearing white gloves stack them into boxes like domino pieces.
Though Switzerland is not a gold miner, it is home to some of the world's largest refineries, which process an estimated 40 percent of all newly mined gold.
Argor-Heraeus is part-owned by the Austrian Mint and a subsidiary of Germany's Commerzbank. Commercial and central banks are its chief customers and it says it processes some 350-400 tonnes of gold and 350 tonnes of silver per year.
Customers buying gold bars, which can weigh more than 10 kg each, have to wait roughly a month, taking into account the year-end holiday season.
For those buying coins or ingots, which can fit into the palm of a hand, the delay is six to eight weeks. A year ago, these small products could be had within a couple of days.
Worries about the banking system globally have boosted worldwide demand for physical gold, the Gold Council said.
"Many (people) are afraid of leaving their money in banks," said Sandra Conway, managing director at ATS Bullion in London, which sells bullion and gold coins to institutions and the retail market.
"It's difficult to quantify, but I would say our turnover over the last three months has certainly doubled compared to the previous three months," she said.
FULL CAPACITY
Other Swiss gold refiners also say business is booming.
"Since the summer we have experienced a sharp rise in demand for certain gold products. The one-kilo bar has become very popular," said Fiorenzo Arbini, in charge of health and safety at Pamp, another large Swiss refiner.
"People used to buy certificates, now they want physical gold."
Schnellmann said the Argor-Heraeus smelter is operating at full capacity, three eight-hour shifts a day. Conquering the backlog by hiring is difficult, because each candidate has to undergo a security check.
Gold refiners were established in Switzerland to supply the watch industry and, later, jewelry-makers in Italy.
Switzerland's largest banks stepped in to replace a void in gold trading while the London gold market was shut after World War Two and again during a brief closure in 1968.
The former Soviet Union, another top gold producer, chose Zurich banks to handle most of its gold sales in the 1970s and 1980s.
"Gold has an image of being the asset of last resort. This could be viewed as old-fashioned but this is how enough people with enough money to matter think," said Stephen Briggs, a metals strategist at RBS Global Banking & Markets.
GOLD TOUCH
India, China and the Middle East remain the biggest gold importers, particularly for jewelry. But demand for physical gold has exploded also in Europe, the Gold Council said.
In Switzerland, home to the world's largest private banking industry, demand for gold bars and coins shot up six-fold to 21 tonnes in the third quarter of 2008, more than in any other European country.
Retail investment in gold rose 121 percent in the third quarter of 2008, an important contributor to the overall increase in global demand, the Gold Council said.
In that period purchases of gold bars by retail investors, who often buy through commercial banks, rose nearly 60 percent, notably in Switzerland, Germany, and the United States.
There was a surge of interest among professional investors shortly after the collapse of Lehman Brothers in September.
Private bank Julius Baer in October launched a fund to invest exclusively in gold bars stored in highly secured vaults in Switzerland.
"The fascination with gold has been there since the beginning of civilization," said Schnellmann. "It cannot be explained: you can't eat gold, you cannot build anything resistant with it and yet people want to hoard it."
CitiBank - No Account Access
NEW YORK – Customers of New York City-based Citibank have lost access to much of their account information because of a computer outage.
Many of the troubled bank's clients haven't been able to retrieve account details online or by telephone since Tuesday afternoon. Others can access only parts of their account profiles.
Citibank telephone representatives say they don't know what caused the outage but technicians are working to fix it. They've been telling customers to call back after Wednesday morning.
A Citibank spokeswoman hasn't replied to a phone message or an e-mail sent after business hours.
Citibank is a division of Citigroup Inc., which is struggling to survive the global financial crisis with billions of dollars in aid from the government.
Many of the troubled bank's clients haven't been able to retrieve account details online or by telephone since Tuesday afternoon. Others can access only parts of their account profiles.
Citibank telephone representatives say they don't know what caused the outage but technicians are working to fix it. They've been telling customers to call back after Wednesday morning.
A Citibank spokeswoman hasn't replied to a phone message or an e-mail sent after business hours.
Citibank is a division of Citigroup Inc., which is struggling to survive the global financial crisis with billions of dollars in aid from the government.
Tuesday, December 16, 2008
Beck on Capitalism
December 16, 2008 - 13:02 ET
GLENN: From WSC in South Carolina, man, it is always good to be in the South. Welcome to the program. We're glad you're here. We just had a guy call. Dan, do you remember where he was calling from? What city was he calling from? Does anybody know, Sarah?
STU: Cincinnati. He was in Cincinnati but he was actually over the river, Glenn. He was over the river and he was in Kentucky. He was a few miles away from Cincinnati. He just wanted to make sure you knew that, he wasn't in Cincinnati.
GLENN: Yeah, he had to point that out to me. All right. So he's south of the Mason-Dixon line. He's in Kentucky, and he said "Your theory of capitalism is flawed." And I said, how's that? He said, "Well, because in your theory even if, if we play this all out to the extreme," he said, "Even if everybody works as hard as they possibly can, gets all the education that they can, there will still be people working at McDonald's." Whoa. Well, first of all, let me say this. I'm sorry that working at McDonald's is so bad. I'm sorry that honest labor now in this country is so bad. I'm sorry -- I hope this guy never eats at McDonald's because you're taking advantage of the disadvantaged. If you believe that, then by working -- by buying anything at McDonald's, you are helping apparently what is slave labor. You're just furthering the evil clown.
Let me ask you this question: If everybody had the most education and everybody worked hard and there were still people working at McDonald's, should we just then have the government go in and abolish McDonald's? Should there only be Ruth's Chris steakhouses? And even if there were Ruth's Chris steakhouses, wouldn't there still have to be people that wait those tables? This is the insanity of people who embrace socialism.
Gang, I told you a year ago that you were going to wake up one day and your country's going to be different. The country is different. Socialism is there. They have suspended any kind of sanity. They are intentionally now trashing our dollar. There's no way else to explain what's going on. Let me -- for those of you who think that it's so unfair that we have to have people that work at McDonald's, let me ask you this: How many people in this country have started behind the counter at McDonald's? I washed pots and pans; I'm rich now. God bless America. There's nothing wrong with that. There's nothing wrong with it. Only in this country can you become rich and come from nothing. That's the American dream, that you can pursue your dream. Not that you get your dream.
You know, the scariest thing my daughter has ever, ever said to me, and she said this to me and it scared the living daylights out of me because it's what I said. It's one of the reasons why I was an alcoholic and quite honestly a loser for a lot of my life. She said to me, "Dad, I don't think my life is going to work out how I had it planned." I broke into tears. I said, "Honey, you're right. It's not. But that's a good thing. Life never works out the way you planned. It's a journey. It's being able to look at the things that have happened to you and being able to flip them upside down and see them in the proper perspective. There is no bad. There is only things that happen to you, and you choose to make them bad or you choose to grow from there. You choose to learn from your mistakes."
As a guy who refused to learn from my mistakes over and over an over again, you can get so bitter, "Oh, well, I'll never get out. Oh, well, these people are always..." those are loser statements. "They always are trying to keep me down." The only ones that are ever trying to keep you down are not the ones who are saying "Cut the crap." Take everybody out of the path. Let me succeed or fail on my own. Anybody who tries to say, "Oh, well, you need me to help you," that's an enabler. "Oh, you need me."
You know when we really succeed is when we don't need anyone. We choose to engage with others because we know that, man, if I combine my talents with your talents, my self-awareness with your self-awareness, we can really do great things. But when somebody's in a relationship where the other one's like, "Okay, well, you're just too stupid" or you're just whatever, and they are constantly telling you -- remember, what this government is doing is telling you, they are convincing you that you can't do it. That is an abusive relationship! That's mental abuse. If this was a relationship, a husband and a wife and you were the husband or you were the wife and the government was the other spouse and you went to a counselor and you would say to the counselor, "Well, these are the things that my spouse keeps telling me, that I can't do it without them, that I need them, that they'll protect me, that I'm too weak, that I need bailing out, that they'll clear the path," at some point the counselor would look to your spouse and say, "You're abusing them. You are weakening them. You are intentionally implanting that message in their head over and over again constantly 24/7 and you are crippling them." Then the counselor would look to you and say, "Well, now that you know the truth, what are you going to do." And unfortunately, because I see it over and over and over again, the abused always says, "Well, they really do love me and I'm sure they'll change. And they don't mean it that way. And, well, I just don't want to start all over again. Well, I don't know if I can make it on my own. I... I'm better off where I'm at." You know why that happens? People don't like change. No matter how bad it is, they are more afraid of the unknown than the abuse. Don't be afraid of the unknown. That is -- I have to tell you, that's the point, that's the message in the Christmas Sweater, and I see this on a personal level with almost every single person I meet. The people who are not successful are always the ones standing in their own way of success. I meet people -- and I mean this. Every day I meet somebody, whether they are in my industry or somebody else's industry and I meet them and I think to myself, that person is a multimillionaire. Why? Why are they not successful? Why are they struggling? And if I take the time to talk to them, I can see it. They don't believe or they're engaged in some sort of self-destructive behavior. Everybody puts a limit on themselves, and nine out of ten times it's because of arrogance or it's fear. They just think that they're so great, they treat others like garbage. That was my problem for years and years and years, arrogance. But my problem also had the other side: Fear. I was so arrogant because I was so afraid that there wasn't anything real inside of me, and I think most people are like this. They don't think that there's anything really inside of them. They don't think that, "Well, they have these dreams, but those are stupid dreams and I can't talk to anybody about those. I made so many mistakes, I'll never get back, and I'm afraid everybody's going to figure out that I'm really a fraud." All of that stuff is stopping you! And it's all stuff that allows others to have power over you. Don't care anymore. The secret is don't care.
You know, when I'm out on these book signings, I try so hard to listen to the spirit, I try so hard. I look, I try to at least, I look at everybody in the eye. When you come to meet me, we only usually have about five seconds, but I try to really look you in the eye for as long as I can and I can feel it. People break their eye contact from me so fast, and I wish I could just say, "You, go stand on the other side." When they come by, I can see it. They break their eye contact. Some people don't even make contact. They will glance up real quick, but they won't really make eye contact. And I just want to say to them, "You, go stand behind me. I'm going to spend 15 minutes with you afterwards." Because I can tell the ones that don't believe in themselves or are hurt or something is going on inside of them that they don't want to look because they know. It's like they -- whether it's subconscious or not, they can't handle somebody looking in their eye because they know that that person, they think that person's going to be able to see who they really are, and who they really are is not very good. And that's a lie! I can see it in people's eyes. I can see it when they come by and they are the first ones that they are looking at me in the eye before I am and they are walking away and they are turning their body and they are still walking away and they are still looking me in the eye. That person has what they need. But they are afraid. Most people are afraid, and I know. Because you don't know what it is that's inside of you.
Let me tell you what's inside of you: Peace. Happiness. There may not be success in the worldly sense, but that's what's so screwed up about our country right now. Jeez, didn't we learn this on September 11th? Success wasn't money. It wasn't a bigger house. It wasn't a bigger television. Success was happiness. Success was family. The big thing I struggle with, the hardest thing for me to do is to be with my children. It really is. I don't know how to be a good dad. I don't. I struggle with it every single day. But let me tell you something: I'm gonna do it. I spend time with my kids, and my kids know it.
GLENN: From WSC in South Carolina, man, it is always good to be in the South. Welcome to the program. We're glad you're here. We just had a guy call. Dan, do you remember where he was calling from? What city was he calling from? Does anybody know, Sarah?
STU: Cincinnati. He was in Cincinnati but he was actually over the river, Glenn. He was over the river and he was in Kentucky. He was a few miles away from Cincinnati. He just wanted to make sure you knew that, he wasn't in Cincinnati.
GLENN: Yeah, he had to point that out to me. All right. So he's south of the Mason-Dixon line. He's in Kentucky, and he said "Your theory of capitalism is flawed." And I said, how's that? He said, "Well, because in your theory even if, if we play this all out to the extreme," he said, "Even if everybody works as hard as they possibly can, gets all the education that they can, there will still be people working at McDonald's." Whoa. Well, first of all, let me say this. I'm sorry that working at McDonald's is so bad. I'm sorry that honest labor now in this country is so bad. I'm sorry -- I hope this guy never eats at McDonald's because you're taking advantage of the disadvantaged. If you believe that, then by working -- by buying anything at McDonald's, you are helping apparently what is slave labor. You're just furthering the evil clown.
Let me ask you this question: If everybody had the most education and everybody worked hard and there were still people working at McDonald's, should we just then have the government go in and abolish McDonald's? Should there only be Ruth's Chris steakhouses? And even if there were Ruth's Chris steakhouses, wouldn't there still have to be people that wait those tables? This is the insanity of people who embrace socialism.
Gang, I told you a year ago that you were going to wake up one day and your country's going to be different. The country is different. Socialism is there. They have suspended any kind of sanity. They are intentionally now trashing our dollar. There's no way else to explain what's going on. Let me -- for those of you who think that it's so unfair that we have to have people that work at McDonald's, let me ask you this: How many people in this country have started behind the counter at McDonald's? I washed pots and pans; I'm rich now. God bless America. There's nothing wrong with that. There's nothing wrong with it. Only in this country can you become rich and come from nothing. That's the American dream, that you can pursue your dream. Not that you get your dream.
You know, the scariest thing my daughter has ever, ever said to me, and she said this to me and it scared the living daylights out of me because it's what I said. It's one of the reasons why I was an alcoholic and quite honestly a loser for a lot of my life. She said to me, "Dad, I don't think my life is going to work out how I had it planned." I broke into tears. I said, "Honey, you're right. It's not. But that's a good thing. Life never works out the way you planned. It's a journey. It's being able to look at the things that have happened to you and being able to flip them upside down and see them in the proper perspective. There is no bad. There is only things that happen to you, and you choose to make them bad or you choose to grow from there. You choose to learn from your mistakes."
As a guy who refused to learn from my mistakes over and over an over again, you can get so bitter, "Oh, well, I'll never get out. Oh, well, these people are always..." those are loser statements. "They always are trying to keep me down." The only ones that are ever trying to keep you down are not the ones who are saying "Cut the crap." Take everybody out of the path. Let me succeed or fail on my own. Anybody who tries to say, "Oh, well, you need me to help you," that's an enabler. "Oh, you need me."
You know when we really succeed is when we don't need anyone. We choose to engage with others because we know that, man, if I combine my talents with your talents, my self-awareness with your self-awareness, we can really do great things. But when somebody's in a relationship where the other one's like, "Okay, well, you're just too stupid" or you're just whatever, and they are constantly telling you -- remember, what this government is doing is telling you, they are convincing you that you can't do it. That is an abusive relationship! That's mental abuse. If this was a relationship, a husband and a wife and you were the husband or you were the wife and the government was the other spouse and you went to a counselor and you would say to the counselor, "Well, these are the things that my spouse keeps telling me, that I can't do it without them, that I need them, that they'll protect me, that I'm too weak, that I need bailing out, that they'll clear the path," at some point the counselor would look to your spouse and say, "You're abusing them. You are weakening them. You are intentionally implanting that message in their head over and over again constantly 24/7 and you are crippling them." Then the counselor would look to you and say, "Well, now that you know the truth, what are you going to do." And unfortunately, because I see it over and over and over again, the abused always says, "Well, they really do love me and I'm sure they'll change. And they don't mean it that way. And, well, I just don't want to start all over again. Well, I don't know if I can make it on my own. I... I'm better off where I'm at." You know why that happens? People don't like change. No matter how bad it is, they are more afraid of the unknown than the abuse. Don't be afraid of the unknown. That is -- I have to tell you, that's the point, that's the message in the Christmas Sweater, and I see this on a personal level with almost every single person I meet. The people who are not successful are always the ones standing in their own way of success. I meet people -- and I mean this. Every day I meet somebody, whether they are in my industry or somebody else's industry and I meet them and I think to myself, that person is a multimillionaire. Why? Why are they not successful? Why are they struggling? And if I take the time to talk to them, I can see it. They don't believe or they're engaged in some sort of self-destructive behavior. Everybody puts a limit on themselves, and nine out of ten times it's because of arrogance or it's fear. They just think that they're so great, they treat others like garbage. That was my problem for years and years and years, arrogance. But my problem also had the other side: Fear. I was so arrogant because I was so afraid that there wasn't anything real inside of me, and I think most people are like this. They don't think that there's anything really inside of them. They don't think that, "Well, they have these dreams, but those are stupid dreams and I can't talk to anybody about those. I made so many mistakes, I'll never get back, and I'm afraid everybody's going to figure out that I'm really a fraud." All of that stuff is stopping you! And it's all stuff that allows others to have power over you. Don't care anymore. The secret is don't care.
You know, when I'm out on these book signings, I try so hard to listen to the spirit, I try so hard. I look, I try to at least, I look at everybody in the eye. When you come to meet me, we only usually have about five seconds, but I try to really look you in the eye for as long as I can and I can feel it. People break their eye contact from me so fast, and I wish I could just say, "You, go stand on the other side." When they come by, I can see it. They break their eye contact. Some people don't even make contact. They will glance up real quick, but they won't really make eye contact. And I just want to say to them, "You, go stand behind me. I'm going to spend 15 minutes with you afterwards." Because I can tell the ones that don't believe in themselves or are hurt or something is going on inside of them that they don't want to look because they know. It's like they -- whether it's subconscious or not, they can't handle somebody looking in their eye because they know that that person, they think that person's going to be able to see who they really are, and who they really are is not very good. And that's a lie! I can see it in people's eyes. I can see it when they come by and they are the first ones that they are looking at me in the eye before I am and they are walking away and they are turning their body and they are still walking away and they are still looking me in the eye. That person has what they need. But they are afraid. Most people are afraid, and I know. Because you don't know what it is that's inside of you.
Let me tell you what's inside of you: Peace. Happiness. There may not be success in the worldly sense, but that's what's so screwed up about our country right now. Jeez, didn't we learn this on September 11th? Success wasn't money. It wasn't a bigger house. It wasn't a bigger television. Success was happiness. Success was family. The big thing I struggle with, the hardest thing for me to do is to be with my children. It really is. I don't know how to be a good dad. I don't. I struggle with it every single day. But let me tell you something: I'm gonna do it. I spend time with my kids, and my kids know it.
Monday, December 15, 2008
Gold n Comex
Once again the gold banks stole your golden candy. They will do it again tomorrow and continue until they really have to trade real gold.
My question to the most financially able among you is as follows:
Have you had enough of the daily short side manipulation carried on by the same people blatantly on the floor of the make believe gold paper gold exchange, the COMEX? Over the weekend they thumbed their noses at you in an article concerning the increase in delivery taking. The COMEX member quoted laughed at us saying they had a warehouse of $8 billion that was too big to feel any effort to take delivery.
Maybe Madoff didn’t know about the COMEX. $8 billion in today’s world is chump change, however the chumps at the evil COMEX can’t count the amount of fingers they have.
To our most financially able readers, those who have all the physical gold they want, it only takes 21,000 one hundred ounce bars taken delivery of and removed from the COMEX to convert that market to a cash market from a make believe no gold, paper gold market and price maker.
STOP THE COMEX.
My question to the most financially able among you is as follows:
Have you had enough of the daily short side manipulation carried on by the same people blatantly on the floor of the make believe gold paper gold exchange, the COMEX? Over the weekend they thumbed their noses at you in an article concerning the increase in delivery taking. The COMEX member quoted laughed at us saying they had a warehouse of $8 billion that was too big to feel any effort to take delivery.
Maybe Madoff didn’t know about the COMEX. $8 billion in today’s world is chump change, however the chumps at the evil COMEX can’t count the amount of fingers they have.
To our most financially able readers, those who have all the physical gold they want, it only takes 21,000 one hundred ounce bars taken delivery of and removed from the COMEX to convert that market to a cash market from a make believe no gold, paper gold market and price maker.
STOP THE COMEX.
The Rich Pawns
BEVERLY HILLS, Calif./PHOENIX (Reuters) - Whether it's a Tiffany diamond or a three-year-old lawnmower, more and more Americans from all social classes are pawning their possessions to make ends meet.
Pawn shop owners see strong business across the country, even in unexpected locales like Beverly Hills, the mecca of luxury living and shopping.
"Banks aren't lending so people are coming here for short-term loans against collateral like diamonds, watches and other jewelry," said Jordan Tabach-Bank, CEO of Beverly Loan Co, self-described "pawnbroker to the stars."
"I do see my share of actors, writers, producers and directors," he said, but also cited more visits from white-collar professionals and especially business owners struggling to meet payroll obligations.
"We still do the five-, six-figure loans to Beverly Hills socialites who want to get plastic surgery, but never have we seen so many people in desperate need of funds to finance business enterprises," he added.
In the 70 years of the family business, Beverly Loan, which usually charges 4 percent monthly interest on loans, has never loaned so much as it has in the past few months, he said.
"We're a lot easier to deal with than a bank," he said from his office on the third floor of a Bank of America building near Rodeo Drive. An armed security guard watches over the reception, where case after case is filled with precious gems.
It's less glamorous at Mo Money Pawn, located in the grimy area of central Phoenix, where struggling building contractor Robert Lane waited for the shop to open its doors so he could pawn a table saw he bought for $900.
"It's to get ahead and pay off some of the bills," he says standing outside the store, where he hoped to get $300 for a cherished workshop tool he now rarely uses as work dries up.
MORTGAGE BROKERS AT PAWNBROKERS
There are as many as 15,000 pawnbrokers across the United States. As the U.S. recession deepens, pawnbrokers -- long seen as a lender of last resort -- are noting a rise in business.
No national body keeps statistics for the sector, but proprietors across the spectrum say they are thriving as home foreclosures spiral and bank credit remains scarce.
"Business is good," Mo Money owner Eric Baker said. The store, which makes loans on anything from a motor home to guns to lawnmowers and jewelry, says turnover is up by around 20 percent over a year ago on a broader range of clients.
"You are seeing some bigger stuff, you're seeing some people you probably wouldn't have seen," he said.
Newer clients include struggling contractors like Lane, as well as cash-strapped real estate, land and mortgage brokers, seeking loans, which are pegged by state law at 22 percent over 90 days.
"They are coming in with the houseboats, the quads, the Harleys... The toys they can live without, sitting in the garage," Baker said, sitting in his office at the store, where several of the staff have pistols holstered in their belts.
Across town, William Jachimek, a 25-year veteran of the trade, said cash-strapped mortgage brokers started coming in about a year ago and now account for 10 percent of business.
"We had one mortgage broker who pawned his wife's jewelry and their Viking oven," says the owner of five pawn shops who takes "everything that can be sold on E-bay" as collateral.
Business is up 20 percent on last year at Mo Money Pawn, and seven percent at Pawn Central, Jachimek's flagship store. Nevertheless, a growing number of customers are defaulting on loans, creating some uncertainty.
"It's really good from the aspect that we're taking stuff in and your money is making money while it's out there. But, on the other side, a lot of people are not picking stuff up," Baker said.
Pawnbrokers said it was getting harder to turn over items and unsold merchandise is mounting. Back in Beverly Hills, Tabach-Bank said defaults were up a bit, but still only about 5 percent. "Unlike banks, we are able to work with our customers," Tabach-Bank said. "We're not the kind of pawn shop that cuts you off the day your loan comes due."
Pawn shop owners see strong business across the country, even in unexpected locales like Beverly Hills, the mecca of luxury living and shopping.
"Banks aren't lending so people are coming here for short-term loans against collateral like diamonds, watches and other jewelry," said Jordan Tabach-Bank, CEO of Beverly Loan Co, self-described "pawnbroker to the stars."
"I do see my share of actors, writers, producers and directors," he said, but also cited more visits from white-collar professionals and especially business owners struggling to meet payroll obligations.
"We still do the five-, six-figure loans to Beverly Hills socialites who want to get plastic surgery, but never have we seen so many people in desperate need of funds to finance business enterprises," he added.
In the 70 years of the family business, Beverly Loan, which usually charges 4 percent monthly interest on loans, has never loaned so much as it has in the past few months, he said.
"We're a lot easier to deal with than a bank," he said from his office on the third floor of a Bank of America building near Rodeo Drive. An armed security guard watches over the reception, where case after case is filled with precious gems.
It's less glamorous at Mo Money Pawn, located in the grimy area of central Phoenix, where struggling building contractor Robert Lane waited for the shop to open its doors so he could pawn a table saw he bought for $900.
"It's to get ahead and pay off some of the bills," he says standing outside the store, where he hoped to get $300 for a cherished workshop tool he now rarely uses as work dries up.
MORTGAGE BROKERS AT PAWNBROKERS
There are as many as 15,000 pawnbrokers across the United States. As the U.S. recession deepens, pawnbrokers -- long seen as a lender of last resort -- are noting a rise in business.
No national body keeps statistics for the sector, but proprietors across the spectrum say they are thriving as home foreclosures spiral and bank credit remains scarce.
"Business is good," Mo Money owner Eric Baker said. The store, which makes loans on anything from a motor home to guns to lawnmowers and jewelry, says turnover is up by around 20 percent over a year ago on a broader range of clients.
"You are seeing some bigger stuff, you're seeing some people you probably wouldn't have seen," he said.
Newer clients include struggling contractors like Lane, as well as cash-strapped real estate, land and mortgage brokers, seeking loans, which are pegged by state law at 22 percent over 90 days.
"They are coming in with the houseboats, the quads, the Harleys... The toys they can live without, sitting in the garage," Baker said, sitting in his office at the store, where several of the staff have pistols holstered in their belts.
Across town, William Jachimek, a 25-year veteran of the trade, said cash-strapped mortgage brokers started coming in about a year ago and now account for 10 percent of business.
"We had one mortgage broker who pawned his wife's jewelry and their Viking oven," says the owner of five pawn shops who takes "everything that can be sold on E-bay" as collateral.
Business is up 20 percent on last year at Mo Money Pawn, and seven percent at Pawn Central, Jachimek's flagship store. Nevertheless, a growing number of customers are defaulting on loans, creating some uncertainty.
"It's really good from the aspect that we're taking stuff in and your money is making money while it's out there. But, on the other side, a lot of people are not picking stuff up," Baker said.
Pawnbrokers said it was getting harder to turn over items and unsold merchandise is mounting. Back in Beverly Hills, Tabach-Bank said defaults were up a bit, but still only about 5 percent. "Unlike banks, we are able to work with our customers," Tabach-Bank said. "We're not the kind of pawn shop that cuts you off the day your loan comes due."
Latest on Gold Backwardation
The Market Oracle reports about Gold Backwardation Shaking The World:
(emphasis mine)
Gold Backwardation That Shook The World
Dec 14, 2008 - 12:29 PM
By: Professor_Emeritus
On Friday, December 12, backwardation on gold was still in force at an annualized discount rate hovering around 2% in the December contract, and 0.3% in February contract. Many readers have asked me how it is that so many other observers fail to see the backwardation. The discrepancy is due to differences in methodology. Most analysts calculate the basis as the difference between February and December futures prices which gives them a positive reading. They use the December futures price as proxy for the spot price. This is clearly wrong. The December futures price is not the same as the spot price, even though we are in December.
My methodology is to calculate the basis as the difference between the asked price for the December futures and the bid price for spot gold. The logic behind this is that if you wanted to transfer your costs of carrying gold to the futures market, then you would have to sell physical at the bid price of spot gold and buy it back at the asked price of the December futures.
The opportunity cost of carrying physical gold is known as the carrying charge . It covers interest, insurance, cost of storage, and all other incidental costs including taxes and fees, if any. The carrying charge is the upper bound of the range within which the gold basis can vary. Holders of gold would never allow the basis to exceed the carrying charge. If it did, they would keep selling cash gold and replace it with gold futures until their arbitrage would eliminate excess contango.
Exactly the same theoretical argument can be used to prove that the basis cannot go negative. And, indeed, it never has for more than a few hours that it takes to send out a wake-up call to alert sleeping arbitrageurs.
That is to say, the gold basis has never gone negative -- until December 2, 2008. On that ill-starred day gold went to backwardation for the first time ever in history, and got stuck there. This gave rise to a controversy that is still raging. What is the significance of this event? The majority of observers shrugged: so what? Others, including the present writer, warned of the extremely serious consequences threatening the international monetary system and the world economy because of the highly corrosive nature of the backwardation in gold.
Why is it that the same theoretical argument is foolproof in the case of full contango, but it is fallacious in the case of backwardation? The reason is that full contango in gold (maximum reading on the gold basis) implies full public confidence in fiat money; backwardation (minimum reading on the gold basis) implies the collapse of public confidence in fiat money.
Let us put this into context. We have had a strange and ominous phenomenon lasting well over three decades which mainstream economists have been utterly unable (unwilling?) to explain. When gold futures started trading in the United States in 1975, the gold basis was close to full contango. Since that time it has shown a stubborn falling tendency, steadily increasing its deviation from the carrying charge.
This is as if, after a brief honeymoon in 1975, holders of physical gold started to go on strike in ever greater numbers, refusing to take the ever increasing wage offers on the bargaining table. They would rather go without any wages at all.
Of course, strikes are not out of the ordinary, so the phenomenon of the vanishing gold basis could be, and was, swept under the rug. Mainstream economists could still lull themselves in the belief that the gold basis would never go negative. Come to think of it, if it ever did, it would be the equivalent of employers offering to take over from the unions the responsibility of making strike-pay available to workers on the picket line. Now, there, such a thing would truly be unheard-of!
Yet, surprise, surprise, it has now happened, although not in industrial but in monetary relations. Holders of physical gold, now on fully-fledged strike, are offered a strike-pay by the futures market, and the offer is left on the bargaining table, but the strikers still won't budge. There it is: the gold basis went negative, gold has been in backwardation for over a week, and physical gold is still not coming out of hiding.
In spite of all the propaganda aimed at discrediting me and my theory of gold backwardation, what we are hearing is the shrill sound of the fire-alarm indicating that the house of the international monetary system is on fire. For many a year I have been warning all those who cared to listen that such a fire-alarm was coming sooner or later, and the consequences of ignoring it would be disastrous. Well, it is sounding loud and clear now, and guess what. Fire-fighters brazenly ignore it. Yet you can ignore it at your own peril.
What does it all mean? Not only does it mean that the market is willing to pay all your carrying charges involved in holding physical gold, but it is also willing to pay you (allegedly) risk-free profits for the privilege of relieving you from carrying the burden! "Let me take over your yoke just for a few days; I shall pay you handsomely for the honor" - so the clearing members of Comex plead.
It is as if the bank was paying all your utility bills without charging it to your account. Nay, the bank is actually offering you a bonus for you allowing it to do you the favor. Suppose, for the sake of argument, that all the banks in the world offered all their account holders to take over responsibility for paying their utility bills. Would it not evoke some searching questions about the hidden agenda of the banks? Wouldn't people become extremely suspicious of the preposterous offer? Yet here we go, the futures market in gold, the world's residual source of cash gold, is making the same preposterous offer, and nobody is asking questions. Timeo Danaos et dona ferentes (I fear my enemies most when they bring me gifts, Virgil , Aeneid, II. 49.)
I warn the world again that the futures market would not go to backwardation in gold if the house of paper money were not on fire. There is just no prima facie reason for a shortage in physical gold. A very large part of all the gold produced throughout history still exists in monetary form, sitting in vaults doing nothing. (Under the gold standard it used to be doing heavy-duty work in financing production and world trade.) Unlike all other commodities with the exception of silver, for gold the stocks-to-flows ratio is a high multiple (by contrast, the stocks-to-flows ratio of copper is a small fraction). And, on the top of privately held gold, there is central bank gold amounting to one quarter of all the gold ever produced since the dawn of history. Why are central banks unwilling to take advantage of risk-free profits by releasing gold? Could it be that, in possession of inside information, they have reason to be afraid that the regime of irredeemable currency may soon collapse and, with their gold gone, they don't want to be left holding the bag? Could it be that the Babeldom of the debt tower is already crumbling, but the fact is being covered up?
There is simply no explanation for the backwardation in gold, absent monetary science. And since monetary science has been exiled from the world's universities for the past fifty years (this is what I call "Lysenkoism -- American style", see References below), people are dumbfounded. They don't understand the phenomenon of holders of gold passing up the opportunity to earn risk-free profits.
Monetary science gives a clear and unambiguous explanation. Here it is, and please remember that you have heard it here first. We are facing a pathology of the international monetary system based, as it is, on irredeemable promises to pay. People are enjoined through 'legal tender' legislation to use these irredeemable promises as if they were the ultimate means of payment, even though they are not, and the world would rather use gold and silver as the natural and ultimate extinguisher of debt. But gold and silver have been coercively eliminated from monetary circulation for the competition they offered to synthetic debt-liquidating devices. Mainstream economics pretends that the issue has been settled for once and all. It asserts that liquidation of debt through the coercively maintained payments system has no threat to the national and world economy. Yet what is happening is that the government keeps kicking the toxic garbage upstairs which keeps accumulating unobtrusively in the attic, only to come crashing down in its own good time to cause untold amount of social damage.
In the real world it is natural law, rather than man-made coercive laws, that prevail. The pathology of the regime of irredeemable currency has not been attended to, and day of reckoning has dawned. Our pathological monetary system has allowed the burgeoning of debt beyond all rhyme and reason. It has no mechanism to extinguish debt. It pretends that transferring debt to the banks, and ultimately to the government, is tantamount to extinguishing it. However, the truth of the matter is that only gold circulation is able to extinguish debt. When it is stopped in its tracks, as it is under conditions of backwardation, debt explodes.
The debt tower is toppling. Central banks work overtime printing money to plug the holes in the leaky foundation, but their traction that they could once take for granted is gone. The money they print goes into either gold hoarding or into government bonds. The monetary system has short-circuited and is in the process of burning out. Practically no money is going into the production of goods and services. The bloated economy is contracting fast. Great Depression II is upon us. The monetary system is past the point of repair. This is the story that the backwardation of gold is trying to tell those of us who have ears for hearing and brains for comprehending.
Backwardation in gold is the sweet siren song that is trying to tempt Odysseus to his doom. But Odysseus was smart enough to have himself tied, fist and foot, to the mast and had the ears of his oarsmen be plugged with wax. His ship is sailing through the dangerous waters without unloading gold.
Backwardation also gives a signal to those who are not so fortunate as to have some of the precious yellow in hand. It tells them to be prepared for a thunderous collapse of the international payments system, worse than the collapse of the twin towers of the World Trade Center. Backwardation means the inevitable contraction of the world economy, the beginning of an era of diminishing enterprise and employment, an era of snowballing business failures and poverty. Printing more irredeemable promises to pay will make this condition worse, not better.
* * *
It can be seen that the $80 rise in the spot price from $740 to $820 during the week that just ended has not been able to compel holders of spot gold to exchange their holdings for a promise to deliver gold a mere 18 days later, the bait of 'risk-free' profit notwithstanding, in spite of the unprecedented discount on gold futures. To tell the truth, the promised profits are not risk free. The risk is that the gold will never be returned and those who have listened to the siren song will be left holding the bag.
Events of last week show the heroic resistance of the bulls: they have so far refused to listen to the sweet siren song of the clearing members. They unearthed the golden hatchet and have not let themselves be led astray from the warpath. On Thursday, December 11, 12,588 contracts in the December futures month (an increase of 139 contracts from the previous day) stood in line waiting for delivery. This is equivalent to 43% of registered gold in the warehouses! As is known, the clearing members have till December 31 to deliver; otherwise they have to declare "liquidation only", effectively closing the gold window. If that happens, it would be a historical first, likely to cause a much bigger stir than the appearance of backwardation on December 2, which caused a yawn . The world would be shaken out of its lethargy. This backwardation would break the grip of the regime of irredeemable currency on the world.
The clearing members have used the carrot to no avail. Will they now use the stick, increasing margins on long positions to exceed the value of the underlying contract? We don't know, but obviously they are hesitant to make a rash decision. Such a move could easily backfire. It would betray their desperation, which could provoke even more notices demanding delivery of physical gold.
Who is going to blink, the good guys or the bad? It is too early to say. At any rate, even if the good guys blink, they will be back in force in February for a showdown to face a much-weakened opponent.
My reaction: Will clearing members be able to deliver the gold by the December 31 deadline? Or will December 2008 be the month where COMEX breaks down?
In any case, gold remains the safest assets. Unlike treasuries, it will retain its purchasing power with or without hyperinflation.
(emphasis mine)
Gold Backwardation That Shook The World
Dec 14, 2008 - 12:29 PM
By: Professor_Emeritus
On Friday, December 12, backwardation on gold was still in force at an annualized discount rate hovering around 2% in the December contract, and 0.3% in February contract. Many readers have asked me how it is that so many other observers fail to see the backwardation. The discrepancy is due to differences in methodology. Most analysts calculate the basis as the difference between February and December futures prices which gives them a positive reading. They use the December futures price as proxy for the spot price. This is clearly wrong. The December futures price is not the same as the spot price, even though we are in December.
My methodology is to calculate the basis as the difference between the asked price for the December futures and the bid price for spot gold. The logic behind this is that if you wanted to transfer your costs of carrying gold to the futures market, then you would have to sell physical at the bid price of spot gold and buy it back at the asked price of the December futures.
The opportunity cost of carrying physical gold is known as the carrying charge . It covers interest, insurance, cost of storage, and all other incidental costs including taxes and fees, if any. The carrying charge is the upper bound of the range within which the gold basis can vary. Holders of gold would never allow the basis to exceed the carrying charge. If it did, they would keep selling cash gold and replace it with gold futures until their arbitrage would eliminate excess contango.
Exactly the same theoretical argument can be used to prove that the basis cannot go negative. And, indeed, it never has for more than a few hours that it takes to send out a wake-up call to alert sleeping arbitrageurs.
That is to say, the gold basis has never gone negative -- until December 2, 2008. On that ill-starred day gold went to backwardation for the first time ever in history, and got stuck there. This gave rise to a controversy that is still raging. What is the significance of this event? The majority of observers shrugged: so what? Others, including the present writer, warned of the extremely serious consequences threatening the international monetary system and the world economy because of the highly corrosive nature of the backwardation in gold.
Why is it that the same theoretical argument is foolproof in the case of full contango, but it is fallacious in the case of backwardation? The reason is that full contango in gold (maximum reading on the gold basis) implies full public confidence in fiat money; backwardation (minimum reading on the gold basis) implies the collapse of public confidence in fiat money.
Let us put this into context. We have had a strange and ominous phenomenon lasting well over three decades which mainstream economists have been utterly unable (unwilling?) to explain. When gold futures started trading in the United States in 1975, the gold basis was close to full contango. Since that time it has shown a stubborn falling tendency, steadily increasing its deviation from the carrying charge.
This is as if, after a brief honeymoon in 1975, holders of physical gold started to go on strike in ever greater numbers, refusing to take the ever increasing wage offers on the bargaining table. They would rather go without any wages at all.
Of course, strikes are not out of the ordinary, so the phenomenon of the vanishing gold basis could be, and was, swept under the rug. Mainstream economists could still lull themselves in the belief that the gold basis would never go negative. Come to think of it, if it ever did, it would be the equivalent of employers offering to take over from the unions the responsibility of making strike-pay available to workers on the picket line. Now, there, such a thing would truly be unheard-of!
Yet, surprise, surprise, it has now happened, although not in industrial but in monetary relations. Holders of physical gold, now on fully-fledged strike, are offered a strike-pay by the futures market, and the offer is left on the bargaining table, but the strikers still won't budge. There it is: the gold basis went negative, gold has been in backwardation for over a week, and physical gold is still not coming out of hiding.
In spite of all the propaganda aimed at discrediting me and my theory of gold backwardation, what we are hearing is the shrill sound of the fire-alarm indicating that the house of the international monetary system is on fire. For many a year I have been warning all those who cared to listen that such a fire-alarm was coming sooner or later, and the consequences of ignoring it would be disastrous. Well, it is sounding loud and clear now, and guess what. Fire-fighters brazenly ignore it. Yet you can ignore it at your own peril.
What does it all mean? Not only does it mean that the market is willing to pay all your carrying charges involved in holding physical gold, but it is also willing to pay you (allegedly) risk-free profits for the privilege of relieving you from carrying the burden! "Let me take over your yoke just for a few days; I shall pay you handsomely for the honor" - so the clearing members of Comex plead.
It is as if the bank was paying all your utility bills without charging it to your account. Nay, the bank is actually offering you a bonus for you allowing it to do you the favor. Suppose, for the sake of argument, that all the banks in the world offered all their account holders to take over responsibility for paying their utility bills. Would it not evoke some searching questions about the hidden agenda of the banks? Wouldn't people become extremely suspicious of the preposterous offer? Yet here we go, the futures market in gold, the world's residual source of cash gold, is making the same preposterous offer, and nobody is asking questions. Timeo Danaos et dona ferentes (I fear my enemies most when they bring me gifts, Virgil , Aeneid, II. 49.)
I warn the world again that the futures market would not go to backwardation in gold if the house of paper money were not on fire. There is just no prima facie reason for a shortage in physical gold. A very large part of all the gold produced throughout history still exists in monetary form, sitting in vaults doing nothing. (Under the gold standard it used to be doing heavy-duty work in financing production and world trade.) Unlike all other commodities with the exception of silver, for gold the stocks-to-flows ratio is a high multiple (by contrast, the stocks-to-flows ratio of copper is a small fraction). And, on the top of privately held gold, there is central bank gold amounting to one quarter of all the gold ever produced since the dawn of history. Why are central banks unwilling to take advantage of risk-free profits by releasing gold? Could it be that, in possession of inside information, they have reason to be afraid that the regime of irredeemable currency may soon collapse and, with their gold gone, they don't want to be left holding the bag? Could it be that the Babeldom of the debt tower is already crumbling, but the fact is being covered up?
There is simply no explanation for the backwardation in gold, absent monetary science. And since monetary science has been exiled from the world's universities for the past fifty years (this is what I call "Lysenkoism -- American style", see References below), people are dumbfounded. They don't understand the phenomenon of holders of gold passing up the opportunity to earn risk-free profits.
Monetary science gives a clear and unambiguous explanation. Here it is, and please remember that you have heard it here first. We are facing a pathology of the international monetary system based, as it is, on irredeemable promises to pay. People are enjoined through 'legal tender' legislation to use these irredeemable promises as if they were the ultimate means of payment, even though they are not, and the world would rather use gold and silver as the natural and ultimate extinguisher of debt. But gold and silver have been coercively eliminated from monetary circulation for the competition they offered to synthetic debt-liquidating devices. Mainstream economics pretends that the issue has been settled for once and all. It asserts that liquidation of debt through the coercively maintained payments system has no threat to the national and world economy. Yet what is happening is that the government keeps kicking the toxic garbage upstairs which keeps accumulating unobtrusively in the attic, only to come crashing down in its own good time to cause untold amount of social damage.
In the real world it is natural law, rather than man-made coercive laws, that prevail. The pathology of the regime of irredeemable currency has not been attended to, and day of reckoning has dawned. Our pathological monetary system has allowed the burgeoning of debt beyond all rhyme and reason. It has no mechanism to extinguish debt. It pretends that transferring debt to the banks, and ultimately to the government, is tantamount to extinguishing it. However, the truth of the matter is that only gold circulation is able to extinguish debt. When it is stopped in its tracks, as it is under conditions of backwardation, debt explodes.
The debt tower is toppling. Central banks work overtime printing money to plug the holes in the leaky foundation, but their traction that they could once take for granted is gone. The money they print goes into either gold hoarding or into government bonds. The monetary system has short-circuited and is in the process of burning out. Practically no money is going into the production of goods and services. The bloated economy is contracting fast. Great Depression II is upon us. The monetary system is past the point of repair. This is the story that the backwardation of gold is trying to tell those of us who have ears for hearing and brains for comprehending.
Backwardation in gold is the sweet siren song that is trying to tempt Odysseus to his doom. But Odysseus was smart enough to have himself tied, fist and foot, to the mast and had the ears of his oarsmen be plugged with wax. His ship is sailing through the dangerous waters without unloading gold.
Backwardation also gives a signal to those who are not so fortunate as to have some of the precious yellow in hand. It tells them to be prepared for a thunderous collapse of the international payments system, worse than the collapse of the twin towers of the World Trade Center. Backwardation means the inevitable contraction of the world economy, the beginning of an era of diminishing enterprise and employment, an era of snowballing business failures and poverty. Printing more irredeemable promises to pay will make this condition worse, not better.
* * *
It can be seen that the $80 rise in the spot price from $740 to $820 during the week that just ended has not been able to compel holders of spot gold to exchange their holdings for a promise to deliver gold a mere 18 days later, the bait of 'risk-free' profit notwithstanding, in spite of the unprecedented discount on gold futures. To tell the truth, the promised profits are not risk free. The risk is that the gold will never be returned and those who have listened to the siren song will be left holding the bag.
Events of last week show the heroic resistance of the bulls: they have so far refused to listen to the sweet siren song of the clearing members. They unearthed the golden hatchet and have not let themselves be led astray from the warpath. On Thursday, December 11, 12,588 contracts in the December futures month (an increase of 139 contracts from the previous day) stood in line waiting for delivery. This is equivalent to 43% of registered gold in the warehouses! As is known, the clearing members have till December 31 to deliver; otherwise they have to declare "liquidation only", effectively closing the gold window. If that happens, it would be a historical first, likely to cause a much bigger stir than the appearance of backwardation on December 2, which caused a yawn . The world would be shaken out of its lethargy. This backwardation would break the grip of the regime of irredeemable currency on the world.
The clearing members have used the carrot to no avail. Will they now use the stick, increasing margins on long positions to exceed the value of the underlying contract? We don't know, but obviously they are hesitant to make a rash decision. Such a move could easily backfire. It would betray their desperation, which could provoke even more notices demanding delivery of physical gold.
Who is going to blink, the good guys or the bad? It is too early to say. At any rate, even if the good guys blink, they will be back in force in February for a showdown to face a much-weakened opponent.
My reaction: Will clearing members be able to deliver the gold by the December 31 deadline? Or will December 2008 be the month where COMEX breaks down?
In any case, gold remains the safest assets. Unlike treasuries, it will retain its purchasing power with or without hyperinflation.
Sunday, December 14, 2008
Saturday, December 13, 2008
Silver Backwardation
What does backwardisation mean for silver?
Filed under: Gold & Silver, US Dollar — peterjcooper @ 10:06 am
Antal E. Fekete, a professor at Intermountain Institute of Science and Applied Mathematics, and frequent writer on precious metals, answers a timely question:
Q: People from around the world keep asking me what advance warning for the collapse of our international monetary system, based as it is on irredeemable promises to pay, they should be looking for.
A: My answer invariably is: ‘watch for the last contango in silver’.
It takes a little bit of explaining what this cryptic message means. Contango is that condition whereby more distant futures prices are at a premium over the nearby. The opposite is called backwardation which obtains when the nearby futures sell at a premium and the more distant futures are at a discount.
When contango gives way to backwardation in all contract spreads, never again to return, it is a foolproof indication that no deliverable monetary silver exists.
Silver price hike
Thank you professor! This is really an extension of the argument on this website dating back to before the summer rout of precious metal prices.
Physical stocks are low and the futures price has been distorted by big hedge fund forced-sales - now we are coming to the day of reckoning when the physical shortage starts to determine the spot price, and not the futures market.
The upside - which should have been there all along - will now come back with a vengeance and smash the few remaining shorts. This is likely to be spectacular - but after the culling of bulls recently not all precious metal fans will be there to benefit.
Filed under: Gold & Silver, US Dollar — peterjcooper @ 10:06 am
Antal E. Fekete, a professor at Intermountain Institute of Science and Applied Mathematics, and frequent writer on precious metals, answers a timely question:
Q: People from around the world keep asking me what advance warning for the collapse of our international monetary system, based as it is on irredeemable promises to pay, they should be looking for.
A: My answer invariably is: ‘watch for the last contango in silver’.
It takes a little bit of explaining what this cryptic message means. Contango is that condition whereby more distant futures prices are at a premium over the nearby. The opposite is called backwardation which obtains when the nearby futures sell at a premium and the more distant futures are at a discount.
When contango gives way to backwardation in all contract spreads, never again to return, it is a foolproof indication that no deliverable monetary silver exists.
Silver price hike
Thank you professor! This is really an extension of the argument on this website dating back to before the summer rout of precious metal prices.
Physical stocks are low and the futures price has been distorted by big hedge fund forced-sales - now we are coming to the day of reckoning when the physical shortage starts to determine the spot price, and not the futures market.
The upside - which should have been there all along - will now come back with a vengeance and smash the few remaining shorts. This is likely to be spectacular - but after the culling of bulls recently not all precious metal fans will be there to benefit.
Friday, December 12, 2008
Hedge Fund Fraud $50 Billion
By Jon Stempel and Christian Plumb
NEW YORK (Reuters) - Investors scrambled to assess potential losses from an alleged $50 billion fraud by Bernard Madoff, a day after the arrest of the prominent Wall Street trader.
Prosecutors and regulators accused the 70-year-old, who was chairman of the Nasdaq Stock Market in the early 1990s, of masterminding a fraud of epic proportions through his investment advisory business, which managed at least one hedge fund.
Hundreds of people, investing with him through the firm's clients, entrusted Madoff with billions of dollars, industry experts said.
"Madoff's investors included captains of industry, corporations -- some of which are publicly traded -- that used Madoff almost as a high-yielding cash management account, endowments, universities, foundations and, importantly, many high-profile funds of funds," said Douglas Kass, who heads hedge fund Seabreeze Partners Management.
"It appears that at least $15 billion of wealth, much of which was concentrated in southern Florida and New York City, has gone to 'money heaven,'" he said.
For a list of companies exposed to Madoff's alleged fraud, please see:
Federal agents arrested Madoff at his apartment on Thursday after prosecutors said he told senior employees that his money management operations were "all just one big lie" and "basically, a giant Ponzi scheme."
A Ponzi scheme is an illegal investment vehicle that pays off old investors with money from new ones, and is dependent on a constant stream of new investment. Because the invested capital is not earning a sufficient return on its own, such schemes eventually collapse under their own weight.
Madoff is the founder of Bernard L. Madoff Investment Securities LLC, a market-making firm he launched in 1960. His separate investment advisory business had $17.1 billion of assets under management.
'BUSINESS AS USUAL?'
About a dozen angry investors gathered on Friday in the lobby of the Lipstick Building in midtown Manhattan, where the market-making firm and advisory business are headquartered, demanding to know the fate of their money.
One woman said that when she called the firm's offices on Thursday she was told it was "business as usual."
Another investor groused, "Business as usual? Of course it's business as usual. We're getting screwed left and right."
Police later evicted the small group from the building.
Individual investors were feeling the squeeze elsewhere.
"I expect to get back zero," said Floridian Susan Leavitt, who invested through Madoff. "When he tells the feds he has $200 million to $300 million left out of billions, what can you expect?"
Two law firms, Milberg LLP and Seeger Weiss LLP, said Friday they had been retained by "dozens of individual investors" in Madoff Securities.
The two most prominent hedge funds that invested with Madoff were the $7.3 billion Fairfield Sentry Ltd, run by Walter Noel's Fairfield Greenwich Group, and the $2.8 billion Kingate Global Fund Ltd, run by Kingate Management Ltd.
Fairfield Greenwich Group said it was trying to determine the extent of potential losses and vowed to pursue recovery of any lost assets. The firm said it had been working with Madoff for nearly 20 years.
Fairfield Sentry and Kingate Global were among a small group of hedge funds to report positive returns for 2008; the average hedge fund was down 18 percent, according to data from Hedge Fund Research.
"People who came to us for portfolio construction were often already invested with Bernie Madoff. He had hundreds of clients," said Charles Gradante, who invests in hedge funds as a principal at Hennessee Group LLC. "Now his whole legacy is destroyed. He was God to people."
Prior to Madoff's arrest, investors had wondered how he was able to generate annual returns in the low double digits in a variety of market environments. Many questioned how U.S. regulators were able to ignore numerous red flags with regard to Madoff's operations.
"Many of us questioned how that strategy could generate those kinds of returns so consistently," said Jon Najarian, an options trader who knows Madoff and is a co-founder of optionmonster.com.
In May 2001, Barron's reported that option strategists for major investment banks said they could not understand how Madoff managed to generate the returns that he did.
"We weren't comfortable with Madoff," said Brad Alford, president at investment adviser Alpha Capital in Atlanta. "We didn't understand how his strategy could generate the kind of returns it did. We will walk away from things like that."
MORE TO COME?
U.S. stocks tumbled in early trading on Friday, with some investors citing the Madoff case as well as the failure of talks in Congress on a rescue for the U.S. auto industry. The market later rebounded, with the Dow Jones industrial average closing 0.75 percent higher for the day.
Investors overseas were reeling from the alleged fraud.
Benedict Hentsch, a Swiss private bank, said it had 56 million Swiss francs ($47 million) of exposure to Madoff's investment advisory business.
Italian bank UniCredit SpA's fund management unit, Pioneer Investments, has exposure through its Primeo Select hedge fund, two people familiar with the matter said.
Bramdean Alternatives Ltd said almost 10 percent of its holdings were exposed to Madoff, sending shares in the UK asset manager crashing.
CNBC Television reported that Sterling Equities, which owns the New York Mets baseball team, had accounts managed by Madoff.
'UNFORTUNATE SET OF EVENTS'
Madoff said "there is no innocent explanation" for his activities, and that he "paid investors with money that wasn't there," according to the federal complaint.
Prosecutors also accused Madoff of wanting to distribute as much as $300 million to employees, family members and friends before turning himself in.
Charged with one count of securities fraud, he faces up to 20 years in prison and a $5 million fine. The U.S. Securities and Exchange Commission filed separate civil charges.
A hearing had been scheduled for Friday afternoon in U.S. District Court in Manhattan on the SEC's request to grant powers to the court-appointed receiver to oversee the entire firm, as well as on the commission's request for a firmwide asset freeze.
But the hearing was canceled after the matter was resolved, said a deputy for U.S. District Judge Louis Stanton. No other details were immediately available. The receiver, lawyer Lee Richards, had been appointed by the judge on Thursday to oversee assets and accounts of the firm held abroad.
Madoff's lawyer, Dan Horwitz, said on Thursday: "We will fight to get through this unfortunate set of events." His client was released on $10 million bond.
Madoff is a member of Nasdaq OMX Group Inc's nominating committee. His firm has said it is a market-maker for about 350 Nasdaq stocks.
He is also chairman of London-based Madoff Securities International Ltd, whose chief executive, Stephen Raven, said the firm was "not in any way part of" the New York-based market-maker.
All equity trades involving the market-making firm will be processed as usual, the Depository Trust Clearing Corp told Reuters on Friday.
NEW YORK (Reuters) - Investors scrambled to assess potential losses from an alleged $50 billion fraud by Bernard Madoff, a day after the arrest of the prominent Wall Street trader.
Prosecutors and regulators accused the 70-year-old, who was chairman of the Nasdaq Stock Market in the early 1990s, of masterminding a fraud of epic proportions through his investment advisory business, which managed at least one hedge fund.
Hundreds of people, investing with him through the firm's clients, entrusted Madoff with billions of dollars, industry experts said.
"Madoff's investors included captains of industry, corporations -- some of which are publicly traded -- that used Madoff almost as a high-yielding cash management account, endowments, universities, foundations and, importantly, many high-profile funds of funds," said Douglas Kass, who heads hedge fund Seabreeze Partners Management.
"It appears that at least $15 billion of wealth, much of which was concentrated in southern Florida and New York City, has gone to 'money heaven,'" he said.
For a list of companies exposed to Madoff's alleged fraud, please see:
Federal agents arrested Madoff at his apartment on Thursday after prosecutors said he told senior employees that his money management operations were "all just one big lie" and "basically, a giant Ponzi scheme."
A Ponzi scheme is an illegal investment vehicle that pays off old investors with money from new ones, and is dependent on a constant stream of new investment. Because the invested capital is not earning a sufficient return on its own, such schemes eventually collapse under their own weight.
Madoff is the founder of Bernard L. Madoff Investment Securities LLC, a market-making firm he launched in 1960. His separate investment advisory business had $17.1 billion of assets under management.
'BUSINESS AS USUAL?'
About a dozen angry investors gathered on Friday in the lobby of the Lipstick Building in midtown Manhattan, where the market-making firm and advisory business are headquartered, demanding to know the fate of their money.
One woman said that when she called the firm's offices on Thursday she was told it was "business as usual."
Another investor groused, "Business as usual? Of course it's business as usual. We're getting screwed left and right."
Police later evicted the small group from the building.
Individual investors were feeling the squeeze elsewhere.
"I expect to get back zero," said Floridian Susan Leavitt, who invested through Madoff. "When he tells the feds he has $200 million to $300 million left out of billions, what can you expect?"
Two law firms, Milberg LLP and Seeger Weiss LLP, said Friday they had been retained by "dozens of individual investors" in Madoff Securities.
The two most prominent hedge funds that invested with Madoff were the $7.3 billion Fairfield Sentry Ltd, run by Walter Noel's Fairfield Greenwich Group, and the $2.8 billion Kingate Global Fund Ltd, run by Kingate Management Ltd.
Fairfield Greenwich Group said it was trying to determine the extent of potential losses and vowed to pursue recovery of any lost assets. The firm said it had been working with Madoff for nearly 20 years.
Fairfield Sentry and Kingate Global were among a small group of hedge funds to report positive returns for 2008; the average hedge fund was down 18 percent, according to data from Hedge Fund Research.
"People who came to us for portfolio construction were often already invested with Bernie Madoff. He had hundreds of clients," said Charles Gradante, who invests in hedge funds as a principal at Hennessee Group LLC. "Now his whole legacy is destroyed. He was God to people."
Prior to Madoff's arrest, investors had wondered how he was able to generate annual returns in the low double digits in a variety of market environments. Many questioned how U.S. regulators were able to ignore numerous red flags with regard to Madoff's operations.
"Many of us questioned how that strategy could generate those kinds of returns so consistently," said Jon Najarian, an options trader who knows Madoff and is a co-founder of optionmonster.com.
In May 2001, Barron's reported that option strategists for major investment banks said they could not understand how Madoff managed to generate the returns that he did.
"We weren't comfortable with Madoff," said Brad Alford, president at investment adviser Alpha Capital in Atlanta. "We didn't understand how his strategy could generate the kind of returns it did. We will walk away from things like that."
MORE TO COME?
U.S. stocks tumbled in early trading on Friday, with some investors citing the Madoff case as well as the failure of talks in Congress on a rescue for the U.S. auto industry. The market later rebounded, with the Dow Jones industrial average closing 0.75 percent higher for the day.
Investors overseas were reeling from the alleged fraud.
Benedict Hentsch, a Swiss private bank, said it had 56 million Swiss francs ($47 million) of exposure to Madoff's investment advisory business.
Italian bank UniCredit SpA's fund management unit, Pioneer Investments, has exposure through its Primeo Select hedge fund, two people familiar with the matter said.
Bramdean Alternatives Ltd said almost 10 percent of its holdings were exposed to Madoff, sending shares in the UK asset manager crashing.
CNBC Television reported that Sterling Equities, which owns the New York Mets baseball team, had accounts managed by Madoff.
'UNFORTUNATE SET OF EVENTS'
Madoff said "there is no innocent explanation" for his activities, and that he "paid investors with money that wasn't there," according to the federal complaint.
Prosecutors also accused Madoff of wanting to distribute as much as $300 million to employees, family members and friends before turning himself in.
Charged with one count of securities fraud, he faces up to 20 years in prison and a $5 million fine. The U.S. Securities and Exchange Commission filed separate civil charges.
A hearing had been scheduled for Friday afternoon in U.S. District Court in Manhattan on the SEC's request to grant powers to the court-appointed receiver to oversee the entire firm, as well as on the commission's request for a firmwide asset freeze.
But the hearing was canceled after the matter was resolved, said a deputy for U.S. District Judge Louis Stanton. No other details were immediately available. The receiver, lawyer Lee Richards, had been appointed by the judge on Thursday to oversee assets and accounts of the firm held abroad.
Madoff's lawyer, Dan Horwitz, said on Thursday: "We will fight to get through this unfortunate set of events." His client was released on $10 million bond.
Madoff is a member of Nasdaq OMX Group Inc's nominating committee. His firm has said it is a market-maker for about 350 Nasdaq stocks.
He is also chairman of London-based Madoff Securities International Ltd, whose chief executive, Stephen Raven, said the firm was "not in any way part of" the New York-based market-maker.
All equity trades involving the market-making firm will be processed as usual, the Depository Trust Clearing Corp told Reuters on Friday.
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