ShockGen

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Yes dear reader we sure have some interesting things going on in the markets. The Fed cut of 75bps was certainly a surprise to most. This shows clearly that we are in a managed or manipulated market. PPT at it’s best. It seems that we can expect some further rate cuts, up to 50bps, on next Fed meeting, at least this is the expectation of some savvy market observers. Well what does that mean? It means that Mr. Bernanke soon will have his goody bag empty. So let’s hope that the cuts will help, although I have my serious doubts.

Well dear reader you certainly have heard about the “little” problems of Societe Generale of France now known as ShockGen. The Frenchies of course were quick to mention that it has nothing to do with the subprime problem. Is it really so? Who knows. However there have been rumours in the markets last quarter 2007 that there is an agreement between the French banks and the French government in order to hide losses due to subprime. Gossip has it that in fact there was some link to subprime but the Frenchies preferred to show it in a different way. Anyway either their control system is just lousy or the guy who supposedly made the frauds had some help.


http://www.bloomberg.com/apps/news?pid=20601109&sid=aWplLsSN.cGk&refer=homee it public now?

Maybe the market fluctuations of last week had to do with the effort to unwind the bad bets at ShockGen. At least that is what some people do believe. Société Générale, once a respected and highly profitable institution, is now reduced to “takeover bait.” Even if the bank survives, existing management probably won’t.


Stimulus package announced last week

Honestly, I don’t see how sending checks to families is going to help the economy. The package might help some people to go to the supermarket twice but the shopping basket will not be filled nicely as basically prices of all important food ítems have gone up to the moon. And after the second shopping trip, what happens then?
Well anyway, the Fed turning the printing presses back on, will make the masses happy, at least for a week or two. However, it’s really no answer to the underlying problems of lower wages, but higher energy and food costs
Well dear reader the printing presses will be busy soon. That means some more trees will have to be cut, converted into paper, be printed with some green and black ink and a Picture of a funny guy (o sorry wanted to say president) et voila, we will have a pack of new Dollars in the amount of billions. Yes dear reader, the Dollar is in fact only a piece of paper, at least from a commodity point of few. Lucky as we are, there are still some people who accept our dollars for payment, but how long will that last?

From www.shadowstats.com

The troubled markets of last week reflect the still early stages of a deepening, systemic solvency and liquidity crisis, in conjunction with a deteriorating inflationary recession. Such is implicit not only in the Fed’s panicked interest rate cut last Tuesday (January 22nd) and a subsequent cut that widely is expected out of the Federal Open Market Committee’s regular meeting ending this Wednesday (January 30th), but also by the Administration and Congress’s rapid movement in setting up a gimmicked economic stimulus package. Increasingly ignored are downside implications for the value of the U.S. dollar and upside pressures on U.S. inflation, both of which promise to roil the markets, going forward.


Liquidity trap
>
This is really an interesting article, please read:
http://www.telegraph.co.uk/money/main.jhtml;jsessionid=P4RWP21BVOSETQFIQMGCFF4AVCBQUIV0?xml=/money/2008/01/24/bcnstig124.xml


Gold

Gold trended upward after its sharp decline on Wednesday last week. We are now well above the USD 900 mark. As mentioned in a previous post, the introduction of gold trading and gold future in Shanghai and Beijing must have had it’s impact on the Gold price this year. At least a part of the upmove can be attributed to this fact. As you certainly remember some Chinese investors mentioned at the end of last year to Bloomberg news, that they will start to sell local stocks and real estate as these prices have gone up already enormously and that they will invest in Gold as soon as the future trading in China will be possible..

“Gold sales in China are booming,”

Gold demand in China, according to the World Gold Council, rose 25% in both the third and fourth quarters of 2007. Demand for jewelry was up 24% during the period, while the desire for good old bullion spiked 43%.
“But the real opportunity for gold in China comes with China's central bank. For several years, Yu Yongding, a committee member of the People's Bank of China, has advised that China use its foreign currency reserves -- the largest in the world -- to buy gold. He's not the only one. Other Chinese economists are urging their government to QUADRUPLE the nation's gold reserves.

Of China's massive $1.5 trillion in foreign reserves, 60% is held in U.S. dollars, while gold holdings make up less than 1%. The U.S., on the other hand, is rumored to keep up to 70% of its reserves in gold.
“The U.S. trade deficit with China has reached $232 billion -- a very sore point in Washington, D.C. One way to help ease that deficit would be to have China's yuan appreciate versus the U.S. dollar. And an easy way to do that would be to use those huge amounts of U.S. Treasuries in China's reserves to buy gold.


Physical gold production

Leading miners, including Gold Fields and AngloGold Ashanti, halted operations on Friday after the companies agreed to curtail use of electricity as the state-run utility, Eskom, struggles to generate enough power to meet the country's basic needs. There just isn't enough left over to protect workers who need all the juice they can get when toiling as deep as 2 miles down.



George Soros in the Financial Times.

“The current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises [preceding the current crisis] were part of a larger boom-bust process…

“Credit expansion must now be followed by a period of contraction, because some of the new credit instruments and practices are unsound and unsustainable. The ability of the financial authorities to stimulate the economy is constrained by the unwillingness of the rest of the world to accumulate additional dollar reserves. Until recently, investors were hoping that the U.S. Federal Reserve would do whatever it takes to avoid a recession, because that is what it did on previous occasions. Now they will have to realize that the Fed may no longer be in a position to do so.”

“Although a recession in the developed world is now more or less inevitable,” Soros continues on a different tack, “China, India and some of the oil-producing countries are in a very strong countertrend. So the current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the U.S. and the rise of China and other countries in the developing world.

“The danger is that the resulting political tensions, including U.S. protectionism, may disrupt the global economy and plunge the world into recession or worse.” That danger was all too obvious for anyone monitoring the panicky air around the “stimulus” package press conference yesterday in Washington.


Credits

Should the credit ratings of insurers like Ambac and MBIA be knocked from their AAA thrones, banks worldwide would need to raise over $143 billion, analysts at Barclays estimated today. If the ratings community were to cut the debt ratings of Ambac and MBIA by one level, it would cost the banking community about $22 billion, Barclay’s estimated. Four levels, from AAA to A, would multiply that expense sixfold.
Well it seems we are close to a credit squeeze because actually in fact nowbody trusts anybody anymore.

Commodities

China is booming and has a strong appetite for commodities. A few weeks ago I mentioned that I believe that we will see a strong bull market in commodities for at least another 10 or more years. My argument was basically the need to improve infrastructure in developing countries such as China and India. Both countries, and many others, have an increasing population with increasing wealth. These people want to have more luxury ítems as soon as they have some savings. Well this need for infrastructure an consumption should keep the demand for commodities high. Please read article on below linkd
http://business.timesonline.co.uk/tol/business/markets/china/article3261567.ece


Inflation
One picture says all. Zimbabwe or soon other countries?