From www.shadowstats.com (dear reader I do recommend to subscribe to the service of Williams. He has excellent information. It cost only a bit less than USD 200 per year. Although I put some information from time to time, I do not put all the information)
Quote
The Federal Reserve’s announcement Friday morning (March 7th) that it was increasing its term auction facility (TAF) for troubled banks to $100 billion, and that it additionally would offer a further $100 billion in term repos sent two important signals. First, the bank solvency crisis is intense and is deteriorating rapidly. Second, the Fed has revved up the currency printing presses (the electronic version as noted by Mr. Bernanke several years back) and will continue to create whatever money it has to create in order to prevent a systemic implosion.
Assuming the good news is that the Fed indeed has the wherewithal to prevent a systemic collapse, which it technically does, the bad news is that the price paid for same eventually will be uncontainable inflation. The current estimate for annual growth in February’s SGS-Ongoing M3 is at an historic high rate of 16.8%. The recent spike in broad money growth not so coincidentally began with the introduction of the TAF facility.
The news here literally is abysmal for the U.S. dollar and promises much higher gold prices. With a long-term outlook, gold is a buy at $1,000 per troy ounce. It also will be a buy when it hits $10,000 per troy ounce. The outlook for equities and bonds under these circumstances is not good.
Unquote
Please check on the following webpage the updated charts of M3, GDP and so on
http://www.shadowstats.com/alternate_data
More of the general outlook (and bad news )
By Ambrose Evans-Pritchard
The Telegraph, London
Tuesday, March 11, 2008
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/11/cnbear111.xml
Panic swept the credit markets on reports of an insolvency crunch at both the US investment bank Bear Stearns and the mortgage giant Fannie Mae, triggering a dramatic surge in default insurance and rumours of yet another emergency rate cut by the US Federal Reserve.
Financial shares plummeted on Wall Street in another day of wild trading as the markets began to fear that the $200 billion (L100 billion) lifeline pledged by the Federal Reserve last Friday would not be enough to halt a vicious downward spiral.
The Dow Jones index was off 137 points to 11,757 in New York, breaking through the crucial support line of its January lows. Credit default swaps (CDS) measuring bankruptcy risk on Bear Stearns debt rocketed from 246 points to 792 on fears that it had been unable to raise capital to cover mortgage losses and was preparing to invoke Chapter 11 bankruptcy protection.
The company denied the reports, insisting that it had $8 billion of ready credit lines and enough funds to meet its debt obligations for the next year without having to sell assets or take out fresh debt. "There is no truth to the liquidity rumours," said a spokesman.
The share price was down 10 percent in early trading.
Lehman Brothers, the biggest mortgage underwriter, was also mauled on leaked reports that it planned to slash its worldwide workforce by 5 percent. Lehman CDS contracts leaped 60 points to 395.
Almost every indicator of credit stress was flashing warning signals. The CDX index measuring default risk on US investment grade bonds rose to 190 and the iTraxxx Europe touched 150.
Bank of America said the Fed would have to cut rates to 1.5 percent by the middle of the year. The futures markets have begun to price in the serious possibility of a 100-basis-point drop next week. Goldman Sachs said the Fed chairman, Ben Bernanke, might push through an emergency cut even sooner.
Fed
The Fed decreases rates – but actual borrowing costs go up! Mortgage rates are higher today than they were when the Fed began cutting last September. As asset prices slip...and the financial industry takes losses...lenders are afraid that they might not get repaid; they want higher yields to justify the risks. And since the real cost of borrowing is going up, real business activity is going down. The economy is sinking...along with the value of the collateral.
What is the solution the Fed provides? Well dear reader you know it already. They only thing they really do is lowering rates and putting more money in circulation. In fact, the market has already priced in a 75 basis point cut at the upcoming Fed meeting, some are talking about a 100 bps cut.
Well this toxic combination will of course produce more inflation. It is unfortunately the kind of inflation that is nasty because it is reflected in much higher prices of those products we need coupled with deflation due to a natural correction of the exaggerations seen in speculative investments.
The problem certainly cannot be solved by the Fed’s actions. The problem is debt and especially too much of it. We are not talking about a few dollars here or there, we talk about huge amounts of debts. This debt has to be eliminated in some way. Guess how it will evaporate? Again, Kondratieff winter at it’s best. With more money flowing around, I think it is a safe guess that commodity prices will move up to much higher levels. Personally, as you already know, I expect higher precious metal, oil and agricultural commodity prices.
If you want to have some more information about what is going on at the Fed right now, you might be interested in the following link, but be careful, the information you will find is shocking
http://www.nakedcapitalism.com/2008/03/covert-nationalization-of-banking.html
Credits
Well dear reader, what the Times of London reported early this week, is not nice at all, "The global credit crisis plunged to new depths yesterday as persistent fears over the collapse of a large financial institution caused funding markets to dry up and forced the US Federal Reserve to make available up to $200 billion (£99.3 billion) of emergency financing…Underlining the Fed’s desperate attempts to calm markets, for the first time it said that it would accept mortgage-backed assets as collateral from the banks for fresh loans.
http://business.timesonline.co.uk/tol/business /economics/article3508468.ece
US Stock markets fall to levels unseen since fall 2006
Dear reader, it is time since I have written about the stock markets. Well as my opinion has been that one should be out of the stock market for the moment being, I think what we were able to see in the last few weeks proved my opinion right. Although, dear reader, many stocks have gone down considerably and show now an interesting P/E ration of below 10, I think it is still way too early to consider investments in stocks. Why? Because I think we have not yet seen the whole correction. You might remember that I mentioned various times the PPT or Plunge Protection Team working at full. Well dear reader, they still work with whatever they can. Without the PPT we would be already at much lower levels. The PPT or the President’s group for financial markets are trying to keep something up that should in fact be much lower. I ask myself, how one could be confident in investing in the stock market when the PPT with all they do cannot keep the markets up. It seems obvious to me that the market wants down. Well dear reader even with markets down one can earn money. I know that some of you do short or have shortened the DOW and made some nice profits on the way. This still might work, however if you decide to short the market, I’d like to mention that this is a risky investment and therefore should only be done with limited amounts of money. Personally I do prefer to be long something. This might have to be with the fact that I prefer to invest in something I see potential and that I do not prefer to speculate on a negative happening. So although I do believe that shorting the Dow might bring more profits, I personally will certainly not do it.
A comment from Bill King regarding stock market
The Fed is so scared it is playing the penultimate card [its ultimate card] – quantitative easing.
The Fed is admitting that interest rate cuts have not worked to date and are unlikely to work in the foreseeable future. Qualitative easing, or interest rate manipulation, is no longer effective. This is why the Fed did not make an emergency rate cut last week but opted for the quantitative solution.
The Fed realizes that rate cuts now produce only an ephemeral rally in equity prices, which is mostly short-covering, and exacerbate dollar [foreign investment] and inflationary problems.
Hedge funds
Hedge Funds Reel From Margin Calls Even on Treasuries
By Tom Cahill and Katherine Burton
Quote
March 10 (Bloomberg) -- The hedge-fund industry is reeling from its worst crisis in a decade as banks are now demanding more money pledged to support outstanding loans even when the investment is backed by the full faith and credit of the United States.
Since Feb. 15, at least six hedge funds, totaling more than $5.4 billion, have been forced to liquidate or sell holdings because their lenders -- staggered by almost $190 billion of asset writedowns and credit losses caused by the collapse of the subprime-mortgage market -- raised borrowing rates by as much as 10-fold with new claims for extra collateral.
While lenders are most unsettled by credit consisting of real estate and consumer debt, bankers are now attempting to raise the rates they charge on Treasuries, considered the world's safest securities, because of the price fluctuations in the bond market.
``If you have leverage, you're stuffed,' said Alex Allen, chief investment officer of London-based Eddington Capital Management Ltd., which has $195 million invested in hedge funds for clients. He likens the crisis to a bank panic turned upside down with bankers, not depositors, concerned they won't get their money back.
The lending crackdown is the worst to hit the $1.9 trillion hedge-fund industry since Russia's debt default in 1998 roiled global credit markets and required the U.S. Federal Reserve to pressure the securities industry to arrange a $3.6 billion bailout of Greenwich, Connecticut-based Long-Term Capital Management LP. Today, hedge funds are being forced to sell assets to meet banks' margin calls, resulting in the dissolution of the funds.
``There has to be more in the next weeks,' Allen said. ``There are people who have been hanging on by their fingernails who can't hold on much, much longer.'
`Mercy of Counterparties'
Ivan Ross, founder of Westport, Connecticut-based hedge fund Tequesta Capital Advisors, received a call from his bankers on Feb. 22 demanding he put up more money or risk losing his loans. Ross was unable to meet the margin call as the market for mortgage- backed debt seized up, preventing him from selling securities to raise the cash. Four days later, lenders liquidated his $150 million fund.
``Because it's impossible in this environment to move among dealers, you're at the mercy of counterparties,' said the 45-year- old Ross, who has managed hedge funds for 13 years, including a stint handling mortgage-backed debt for billionaire George Soros. ``To the extent they want to shut you down, they can.'
The demise of Tequesta revealed the deathtrap for hedge funds caught in the credit maelstrom of banks selling mortgage-backed bonds as fast as they can while demanding more collateral from clients who use the securities to back loans.
Carlyle Fund
On Feb. 24, London-based Peloton Partners LLP gave up a ``night and day' effort to stave off demands from banks, including Goldman Sachs Group Inc. and UBS AG, for as much as 25 percent collateral for securities that once required 10 percent, according to investors in the fund. Peloton, run by former Goldman partners Ron Beller and Geoff Grant, liquidated the $1.8 billion ABS Fund, its largest.
The same day, about 5,000 miles (7,770 kilometers) away in Santa Fe, New Mexico, JPMorgan Chase & Co. told Thornburg Mortgage Inc. that it had defaulted on a $320 million loan because it couldn't meet a $28 million margin call, according to U.S. regulatory filings.
Thornburg, the home lender that lost 93 percent of its market value in the past year, was near collapse March 7 after it failed to meet $610 million of margin calls. Chief Executive Officer Larry Goldstone said in a statement the company fell victim to a ``panic that has gripped the mortgage financing industry.'
Repo Agreements
Carlyle Capital Corp., the debt-investment fund started by private-equity firm Carlyle Group of Washington, was suspended from trading in Amsterdam on March 7 after it couldn't meet margin calls, and its banks seized and sold assets.
``Banks are reducing exposure anywhere they can and the shortest way to do that is to cut leverage,' said John Godden, chief executive officer of London-based hedge-fund consultant IGS AIS LLP.
Hedge funds are mostly private pools of capital whose managers participate substantially in the profits from their speculation on whether the price of assets will rise or fall.
The managers that trade fixed-income securities generally borrow money through repurchase agreements, or repos. In a repo, the security itself is used as collateral, just as a homeowner puts up the house as collateral for a mortgage.
Collateral `Haircuts'
Banks usually limit their risk on repos by lending less than the value of the securities used as collateral. Tequesta was able to borrow $95 on $100 worth of AAA rated jumbo prime mortgages in early 2007, meaning the bank took a $5, or 5 percent so-called haircut. By last month, the amount required had risen to as much as 30 percent, Ross said. Jumbo mortgages are loans of more than $417,000, typically used to finance more expensive homes.
The losses started in mid-2007, when prices of subprime loans, those to homeowners with bad credit histories, started tumbling because of a surge in delinquencies. The contagion spread to other credit markets, including bonds backed by student loans and credit cards and now mortgages backed by federal agencies, which have an implied guarantee from the U.S. government.
Prices keep falling, with yields on mortgage-backed debt issued by agencies such as Fannie Mae rising last week to the highest level relative to U.S. Treasuries since 1986. Costs to protect corporate bonds from default are close to a record high.
Under such circumstances, lenders have no choice but to ask clients to put up more cash. For AAA rated residential mortgage backed securities, banks have raised haircuts 10-fold in the past year to 20 percent, according to estimates from Citigroup credit analyst Hans Peter Lorenzen in London.
Treasury Swings
On AAA asset-backed securities, banks are demanding a 15 percent haircut, up from 3 percent last summer. Corporate bond haircuts have gone to 10 percent from 5 percent, bankers said.
At least one bank has raised Treasury haircuts, which range from 0.25 percent to 3 percent, depending on the length of the loan and the creditworthiness of the borrower, said bankers, who declined to be identified. They said they wouldn't be surprised if the practice becomes more widespread, not because they expect the U.S. government to default, but rather because there have been bigger price swings in the Treasury market, which affects value.
Some banks may have been late to raise haircuts for their biggest hedge funds because they are lucrative clients, said Jochen Felsenheimer, head of credit strategy at Milan-based UniCredit SpA, Italy's biggest bank.
``Until now, hedge funds have been the big winners of the crisis and this could be as well due to banks not having yet drawn down their margin,' Felsenheimer said.
Survival of Fittest
Carlyle said in a March 6 statement that margin prices requested for securities weren't ``representative of the underlying recoverable value' of its securities. Lenders started to liquidate its portfolio of $22 billion of AAA rated mortgage debt issued by Fannie Mae and Freddie Mac.
``It's not a question of prime brokers deciding which firms live and which don't,' said Odi Lahav, head of the European Alternate Investment Group at Moody's Investors Service in London. ``They're trying to manage their own risk. There's a Darwinian aspect to survivorship in this industry.'
Some managers set themselves up for a stumble by taking on too much leverage and not anticipating that terms could change, said Christopher Cruden, CEO of Lugano, Switzerland-based Insch Capital Management, which oversees $150 million for clients.
``If you're going to dance with the devil, there comes a time when your toes are going to be stepped on,' Cruden said. ``Prime brokers are there to do business, not be your friend.'
Unquote
Gold
Well dear reader, you know it already, yes I am a gold bug. As a real gold bug there was one thing I had to do while I am here in Queenstown New Zealand. Yesterday I went with my son to Arrowtown, an old gold mining village, and we tried our luck with gold washing in the river just outside Arrowtown. Unfortunately we did not find anything but that is rather due to lack of experience. Why? Because I was told at the wine shop (where I rented the gold pan) and at the jeweler shop, where I bought a gold nugget, that people still find a lot of gold in the rivers around Arrowtown. The girl at the wine shop told me of a guy who, whenever he goes out to look for gold, finds at least a few ounces. According to her he must know where and how. Of course it might have been just a sales speech from both people I asked, however the way the girl at the wine shop told me about the expert gentleman and especially her regretting not having this particular knowledge or ability herself, I do believe it is true (well anyway the taxi driver who took us to the airport confirmed it by telling us that he himself, although definitely not being an expert, does find gold from time to time). Anyway I saw a newspaper clip with the photo of a nugget found in 2000. The price of the nugget at that time was USD 40,000. Imagine how much it would be today. Well anyway, as mentioned nothing found, but I had a fun day with my son and as a gold bug, I believe the experience is a must. I certainly would like to repeat that experience.
The other thing I wanted to do, while here in the Otango area, was to visit the Oceana Gold mine, of which I was a small shareholder until August last year. Unfortunately the tour did not result but it certainly would have interested me to be there. Anyway the interesting point about Oceana Gold and many other gold mines, is that although they were able to increase production, they had to face a loss. Why? Because production costs have gone up tremendously. This is not only true for Oceana Gold put as well for many other producers. Well dear reader, what does that mean in other words? Well it means that the cost of production per ounce must now, on average, already be around or close to at least 700 USD. My guess is that the average production cost for all mines combined should be somewhere around USD 800. For junior mining companies that cost might even be much higher. That means with other words, that there is a natural floor to the gold price. Why? Well because if the gold price falls below production cost, some mines simply will not produce anymore.
That is one of the reasons, dear reader, why I do like gold. The downside risk is in my opinion limited while the upside potential is very high. Furthermore gold in fact is the most conservative investment that really exists. It is the only one that has existed for more than 4,000 years and it is the only one that over time has maintained purchasing power . So what else do you want? Isn’t nice to have an investment with limited downside risk, unlimited upside potential and at the same time being with the most conservative investment ever existed?
Well anyway, we saw gold almost above USD 1,000. What will the key be to break this level? Well as the money paper in general terms is falling in value and more and more people focus on real value the days to see gold above 1,000 are counted in my opinion. The world will soon wake up to the fact that high gold prices is not only a US Dollar problem but that it runs much further and deeper than that. The dollar happens to be the generally accepted reserve currency but it is not the only FIAT currency it is only in the center of all of them. Basically all Central Banks are flooding the markets with their own paper and liquidity is increasing fast. Once the market realize that the world is in the midst of a revolution because of misguided monetary policies and looks at the overall picture (not only the Fed) gold could easily go much higher than everybody expects. You certainly remember my mentioning several times the Chinese. I guess we will see gold above USD 2,000 once the market would know or realize that the Chinese government is or has begun to accumulate gold reserves.
Commodities
The biggest driver behind metal prices such as copper and aluminium is the huge global demand for infrastructure. Morgan Stanley estimates that emerging markets will spend $21.7 trillion on infrastructure over the next 10 years. Power plants, roads, bridges, airports.
“One sleeping giant in all of this is India. Certainly, when you compare India's consumption of metal on a per capita basis with that of other countries, you see enormous room for growth.
Well who forecasted that the secular bull market in commodities will stop soon? At least for the moment being it does not look like it.
Marc Faber
Faber says he sees far fewer investment opportunities, and he is urging caution.
Stocks in China and India could fall 30 per cent to 40 per cent on top of recent drops, he warns.
Bonds could tumble in value along with metals and real estate.
"All commodities, in my opinion, are vulnerable to a correction," Faber warned in a telephone interview with the Toronto Star this week.
"I would say that anyone who cannot tolerate a correction of 20 per cent should not be in anything."
Still, Faber remains a long-term gold bull. With prices nearing $1,000 (U.S.) an ounce this week, gold has risen so high in price he says some other bullion lovers he knows have already returned to cash. He has not. He thinks the metal could pass $3,000 an ounce, if only temporarily, like in the spike of the early 1980s. But the price could also fall sharply first.
Once again, dear reader, I truly hope that Marc Faber is correct with his assumption that commodities could fall. This would really be an excellent entry point once the commodities would have had a correction of 20%.
Oil & Gas
Yes dear reader both commodities have gone up in price lately. Oil is at it’s all time high and natural gas seems to have hit the lowest point a few weeks ago. As mentioned several times before, I have no doubt at all that we will see much higher prices in both commodities over the coming months. However I still hope that T.Boone Pickens is correct by forecasting that in the second quarter prices of both commodities will come down. This would be an excellent opportunity to buy into both commodities. Personally I bought some oil and as well natural gas investments a few weeks ago. Unfortunately I did not buy much. My intention is to increase considerably my position once we are below USD 100 barrel.
Due to my trip, I do not have time to follow all markets. That is one of the reasons why I might have missed the moment to buy into agricultural commodities. Anyway as I believe that prices of agricultural products will go up a lot more, I will buy into some of the commodities as soon as we will see a correction. Coal is another commodity that I am interested right now. However I did not yet find the optimal investment to have an exposure to coal. There are some investments with nice dividend yields but these investments do not have the leverage I am looking for.
Housing bubble worldwide
Well it seems that the housing bubble was not only a bubble in the US but worldwide. If you intend to buy real estate soon, it might be a good idea to wait some time, if you can
From RGE monitor
This week the negative string of U.S. housing data revealed continued weakness on the demand side accompanied by an acceleration in home price deflation. The housing downturn is far from being over. Take a look at: “The Latest Data on U.S. Housing” and “How Much Will U.S. Housing Prices Fall and How Long Will the Downturn Last?”
We have discussed the misfortunes of the U.S. housing sector at length, so we turn today to the health of housing sectors around the world.
Europe: UK, Spain, Ireland, Central and Eastern Europe
The increase in home prices in the UK, Spain and Ireland has been even greater than in the U.S. Are they on track for a bust as severe as the one in the U.S.?
The UK housing market looks vulnerable to a serious downturn with house prices expected to fall by around 5% in 2008 and 8% in 2009. Foreclosures jumped 21% last year and 1.4 million mortgage holders will face costly interest-rate resets in 2008. Will the UK economy hold up? Check out: “Strains in the UK Housing Market: House Price Decline Worst Since 1990s Slump”, “UK Consumer Worries: How Overstretched are Households' Finances?” and “UK Economic Outlook: Serious Downside Risks in 2008”
Spain’s housing sector accounts for a massive 20% of GDP. – far more than in the U.S. The OECD thinks economic growth is likely to slow below 3% in 2008 and 2009, as residential construction drops. Read: “Spain's Housing Bubble Going Bust”, “Party Over in Spain's Construction Industry: How Exposed is the Banking Sector?” and “Spain: Wave of Bleak Data Fuel Recession Fears Weeks Before National Elections On March 9”
In Ireland, house building accounts for 14% of the economy. The Allied Irish Bank forecasts a considerable slowdown in construction in 2008 with only 50,000 homes being built – a 28,000 drop from 2007. For every 10,000 fewer homes built, they suggest, almost 1% is shaved off of Ireland's GDP growth. See: “Is The Celtic Tiger In Trouble?”
Worries about a hard landing in the Baltic economies are very much linked to fears that the property prices have peaked and the real estate sector is starting to cool down. What are the risks to financial stability, in Central and Eastern Europe, posed by households taking on foreign exchange denominated mortgages? Read: “Baltic Property Bubble: Is That A Popping Sound?”, “Could Nordic Banks Get Burned By Baltic Overheating?” and “Household Carry Trades: Eastern European Version of US Subprime Folly?”
Asia/Pacific: Australia, New Zealand, China
Australia's housing shortage, tight labor market and strong migration inflows have led to another housing affordability crisis, just a few years after its last housing boom in 2001-2004. The commodity boom-led upturn has prevented prices from correcting completely. Interest rates at 12 year highs, the uncertain global credit outlook and prohibitive development costs have capped building construction. Check out: “Australian Housing Market: Affordability Crisis”
New Zealand, which recently surpassed Australia for the least affordable housing market in the world, saw the end of its house price boom with prices flattening last year then finally turning down this year. Overvaluation, immigration slump, high interest rates (overnight cash rate 8.25%), mortgage rates (around 10%) and overseas borrowing costs bode ill for residential property. Check out: “New Zealand House Price Boom Is Over”
Housing prices have cooled – somewhat – in most Chinese cities, but with persistent demand for housing and commercial purposes, property prices may be on the rise again – especially with negative real deposit rates and a reacceleration of lending. Despite restrictions on property investment, more money is flowing in and affordability remains a challenge. See “China Attempts to Cool Its Real Estate Boom” and “How Vulnerable Are China's Property Developers”
Middle East: GCC
The GCC real estate boom shows no signs of abating as state-led efforts to diversify oil-dependent economies draw in scads of imported labor, whose demand for housing is inadequately met by housing developers who would rather build luxury residences than affordable housing. Check out: “Real Estate Boom in the Middle East?”
Posts
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/live/s_gold.gif)
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/live/s_silv.gif)