From prudentbear.com
For the week, the Dow was clobbered for 3.8% (down 10.7% y-t-d) and the S&P500 was hit for 3.1% (down 10.2%). The Transports rose 1%, increasing 2008 gains to 13.6%. The Utilities declined 1.2% (down 4.8%). The Morgan Stanley Cyclicals were hit for 3.7% (down 9.2%), and the Morgan Stanley Consumer index fell 3.3% (down 9.4%). The broader market was in better shape. The small cap Russell 2000 declined 1.1% (down 5.3%), and the S&P400 Mid-Caps fell 1.3% (down 0.4%). The NASDAQ100 declined 1.9% (down 7.5%) and the Morgan Stanley High Tech index 2.2% (down 6.4%). The Semiconductors fell 2.7% (down 6.1%), the Street.com Internet Index 2.8% (down 5.5%), and the NASDAQ Telecommunications index 2.3% (down 0.3%). The Broker/Dealers were hit for 3.0% (down 23.9%), and the Banks were slammed for 5.9% (down 29.2%). With Bullion rallying $31, the HUI Gold index rose 4.3% (up 1.5%)
What is hot what not
Well dear reader the news of the week is certainly the flood in the Mid West. With already high agricultural prices and extremely low stockpiles, any disaster as the floods is really bad news. Unfortunately weather conditions are in an increasing way on the extreme sides. That means we have either extreme drought conditions or extreme storms and rains. Coming back to the mean? The question is what has the mean weather condition been? Was it fewer storms or more? A reader and friend wrote to me recently letting me know that the mean is rather harsher weather conditions than agriculture friendly weather. Following some articles and photos of the actual floods.
http://www.boston.com/bigpicture/2008/06/mississippi_floodwaters_in_iow.html
http://www.economist.com/world/na/displaystory.cfm?story_id=11586073
http://www.desmoinesregister.com/apps/pbcs.dll/article?AID=/20080619/BUSINESS01/806190376/1030
And some more news about the same topic.
June 17 – Bloomberg (Jeff Wilson): “U.S. Midwest crop conditions deteriorated to their worst since 1996 as flooding gripped Iowa, threatening to reduce production and cause food inflation to accelerate. Some fields in Iowa, the biggest U.S. corn and soybean producer, got more than 14 inches of rain in the past two weeks… Land devoted to corn and soybeans will drop by as much as 4 million acres, said Dan Basse, president of AgResource… Corn rose to a record $7.915 a bushel yesterday in Chicago, and has gained 72% this year…”
June 16 – Bloomberg (Alan Bjerga): “Cattle futures rose to their highest in at least 22 years as the surging cost of corn renewed concern that U.S. feedlots will reduce the number of animals available for beef production… Cattle futures are up 18% since March 31… ‘An adjustment will have to be made to the structure of the industry,’ said David Kruse, a commodity trading adviser with Commstock Investments… ‘I find it hard to believe there will not be dramatic cutbacks in production.’”
June 19 – Bloomberg (Alan Bjerga): “The price of cereals, baked goods, sweets and poultry will rise this year by more than expected a month ago because of accelerating costs for grain and fuel, the U.S. Department of Agriculture said. The annual gain for cereals and baked goods will be 9% to 10%, up from 7.5% to 8.5% forecast in May and the most since 1980, the USDA said in a report set for release tomorrow. The estimate doesn't reflect flood damage to Midwest crops, which will be included in the July report, the USDA said.”
Inflation
Worldwide inflation is about 7%, says Bill Gross of PIMCO. And since price inflation has now been globalized, there is no escaping. In Britain, consumer price inflation, officially, is running at its highest rate in 10 years.
“There is really nothing we can do about it,” said an analyst from Britain. “We’re a small island. We have to import things from overseas. Prices are rising everywhere. How can they not rise here? We’re just at the beginning of this trend. It’s going to get worse.”
June 17 – Bloomberg (Jeff Wilson): “U.S. Midwest crop conditions deteriorated to their worst since 1996 as flooding gripped Iowa, threatening to reduce production and cause food inflation to accelerate. Some fields in Iowa, the biggest U.S. corn and soybean producer, got more than 14 inches of rain in the past two weeks… Land devoted to corn and soybeans will drop by as much as 4 million acres, said Dan Basse, president of AgResource… Corn rose to a record $7.915 a bushel yesterday in Chicago, and has gained 72% this year…”
June 16 – Bloomberg (Alan Bjerga): “Cattle futures rose to their highest in at least 22 years as the surging cost of corn renewed concern that U.S. feedlots will reduce the number of animals available for beef production… Cattle futures are up 18% since March 31… ‘An adjustment will have to be made to the structure of the industry,’ said David Kruse, a commodity trading adviser with Commstock Investments… ‘I find it hard to believe there will not be dramatic cutbacks in production.’”
June 19 – Bloomberg (Alan Bjerga): “The price of cereals, baked goods, sweets and poultry will rise this year by more than expected a month ago because of accelerating costs for grain and fuel, the U.S. Department of Agriculture said. The annual gain for cereals and baked goods will be 9% to 10%, up from 7.5% to 8.5% forecast in May and the most since 1980, the USDA said in a report set for release tomorrow. The estimate doesn't reflect flood damage to Midwest crops, which will be included in the July report, the USDA said.”
Inflation
Worldwide inflation is about 7%, says Bill Gross of PIMCO. And since price inflation has now been globalized, there is no escaping. In Britain, consumer price inflation, officially, is running at its highest rate in 10 years.
“There is really nothing we can do about it,” said an analyst from Britain. “We’re a small island. We have to import things from overseas. Prices are rising everywhere. How can they not rise here? We’re just at the beginning of this trend. It’s going to get worse.”
Well dear reader, it is not only going to get worse in Britain but everywhere. With all the money creation in the past years (US above 16% and most countries between 10 to 20%, with only a very few countries with inflation in the single digits) inflation is in the pipeline. The cash and credits created by the central banks and the financial industry finally shows up in higher inflation numbers. As long as the created liquidity went into the stock and house markets, nobody had anything to complain. Well it was a nice feeling holding stocks or real estate and having the prices increase steadily. But now with the bubbles deflating the situation looks different. Of course the liquidity that in the last months went into commodities made its prices increase strongly and this of course is not welcomed anymore. Well dear reader this is the fact. We have already high real inflation numbers. Please keep in mind that the real inflation numbers are way much higher than the official ones.
How do the central bankers fight inflation? First of all to me it seems that the so-called fight is nothing else than a word without follow through. Of course they can say that they will fight inflation. They even could increase interest rates a bit in order to show the markets that they really do fight inflation and not just talk about it. But dear reader this is only throwing water into the ocean. As long as liquidity is created and real inflation is in the double digits a symbolic increase of the interest rate level, does not change anything. Interest rates would have to be far above the 10% like during Volcker time, to force a change. This, at least for the moment being, seems not to be in the cards. In fact the Central Bankers (at least the FED) rather would like to lower interest rates and increase liquidity further in order to stimulate a sagging economy.
Well dear reader inflation is, as mentioned, a fact.
“Pain at the Other Pump: Shoe Prices Rise.” The story tells us that footwear is going up too – about 10% to 15% next year, which “would be the largest single-year increase in more than 50 years.”
More about inflation. Following Mervyn King’s explanation.
Last week came word that the Gulf States were piling up $1.5 billion net per day in oil revenues. In China, not an oil exporter, the rate of growth of foreign currency reserves has slowed down recently, but the country still nets about $1 billion per day. Overseas central banks accumulate Everest’s of these dollars, and lend many of them back to the United States – by buying U.S. Treasury bonds. To give you an idea of how fast this mountain of money is growing, foreign central bank holdings of U.S. treasury bonds, held in custody at the Fed, are increasing at a 37% annual rate.
But to buy these dollars, foreign central banks must increase their own currencies to pay for them. And so the global inflation contagion continues to function much as it did for the last five years – except that the flow of funds has shifted away from the finished product exporters in Asia in favor of the exporters of food and energy in the Gulf, Brazil and Russia. The world’s leading central bank is still over-doing it. Result: higher prices.
Oil
Well dear reader oil prices fluctuated a lot lately but at least last week remained above the 130 USD per barrel. Well dear reader, do you think that oil at 130 USD per barrel is expensive? Well if you believe it is you might be surprised about what Chuck Butler writes.
Thirty years ago, which was seven years after the link between the U.S. dollar and gold was severed in 1971, oil was selling, on average, for $13.38 per barrel. Adjusting for inflation - using the Shadow Stats and not the government's laughable CPI - in today's dollars that same barrel of oil would cost $124.
"That it is trading for slightly over that amount, at $133 per bbl, is entirely explainable based on supply/demand constraints, war in the Middle East and the fear of a widening conflict.
Well dear reader I think he has a good argument. Did you know that at least until recently a pint of beer has cost more than a pint of oil (whiskey would even be more of a difference)? Does that make sense to you?
A well dear reader high gasoline price is definitely not good news for the US. Why? Well the whole infrastructure and housing projects (suburbs further and further away from city centers) was built when oil was 25 cents a gallon and therefore built in such a way that most people have to drive long distances be it to go to work or shopping or anything else. Can that be changed easily? Nope. Well there is certainly some room to improve things such as car sharing and so on, but most people still will have to use their car a lot.
Well dear reader, I hope you are in a better situation than those people who have to use their cars. If you have the possibility to shorten distances you have to drive it will certainly be to your favor. Having for example the office or schools close to where you live is certainly a big plus. Well anyway as always everything as bright sides and of course not so bright sides. The bright side of gasoline prices going to the moon is that we soon will have to face less traffic, which will mean less traffic jam.
Oil as an investment
Well dear reader, you know already that I see higher prices ahead. But we do know as well that normally movements in prices are not a one-way street. There are corrections from time to time. Looking at technicals it does not look like we will have a correction soon. However calling tops is always difficult. As mentioned in previous musings, I truly hope to see the price of oil going back towards the USD 100 barrel mark. That is still possible of course although the inflation adjusted price, we learned before, is at 120 and something. Following information about a seasoned oil investor.
Billionaire investor Richard Rainwater has turned bearish on oil. Only temporarily bearish, mind you, but it still struck me as big enough news to write my column about this week. It's not online just yet (update: now it is), but in the interest of serving this blog's readers with the freshest possible news (and because Time's PR folks are about to start flogging the story), here are the basics:
Rainwater made his name managing the investments of the oil-rich Bass family of Fort Worth in the 1980s, steering them most famously into Disney stock when Disney absolutely was not cool. Then he struck out on his own, bankrolled the creation of hospital rollup Columbia Healthcare (which merged with HCA, after which some bad stuff happened, but let's not get into that here), and married Darla Moore (famously christened by Fortune as the "Toughest Babe in Business"). Then, in about 1997, he became convinced that oil prices would start rising soon, and committed much of his fortune to betting on that rise.
http://time-blog.com/curious_capitalist/2008/06/richard_rainwater_turns_bearis.html
More news about oil
Strikes everywhere
June 19 – Bloomberg (James G. Neuger): “A day after truckers, taxi drivers and farmers blockaded Brussels to demand that the European Union fight the soaring cost of living, the EU will get to work on a plan of action. The trouble is that the plan responds to an entirely different crisis, one triggered by Ireland’s veto of the bloc’s new governing treaty. Disputes over the Lisbon Treaty’s fate threaten to turn a summit starting tonight into a political-theory class, distracting the 27 leaders from the economy and stoking charges that the bloc is out of touch with its citizens.”
June 18 – Bloomberg (William Sim): “A week-long strike by South Korean truck drivers has cost Asia’s fourth-largest economy about $5.92 billion in lost trade, dealing a blow to the main growth driver… As many as 13,496 truck drivers, including members of the Korea Cargo Workers Union, stopped moving freight nationwide from June 11 to protest surging fuel costs, demanding higher transport fees and bigger government fuel subsidies.”
Well dear reader the high costs for gasoline or diesel are eating into the pockets of everybody. The last weeks we saw truck drivers protesting in several countries. Are more roadblocks, food riots and so on to be expected?
Well dear reader, please keep in mind the rather hot situation in the Middle East. Earlier this month there was sable-rattling from Israel regarding Iran. A high-ranking Israeli official commented that an attack on Iran's nuclear facilities is "unavoidable." The article is likely contributing to the rally in Jul WTI crude, quoted last $134.31, +2.38 (note the Jul contract expires today).
Last weeks military maneuvers by Israel seem to confirm that anything can happen at anytime.
Well dear reader a situation out of control in the Middle East could lead to a situation described on below link
Well dear reader a situation out of control in the Middle East could lead to a situation described on below link
Dear reader, as you already know I am actually not positive for stock in general and there are many reasons that let me believe stocks should go down. On the other side there are still enormous amounts of cash waiting on the sidelines. Once this cash goes into equities we might get to the sweet filling of the Oreo, as for this summer by Jim Publava. This of course still can happen. This week I found another voice with the same or similar opinion.
David Fuller (Fullermoney): Bearish sentiment indicates stock market rebound “… this graph speaks for itself. There has never been a reading at current or lower levels that was not soon followed by a sharp rebound, including during the last bear market. This indicates to me that we are within a week or two of a bear squeeze, providing at least a tradable rally in which I aim to participate.”
Well it seems that opinions are quite divided. According to Ambrose Evans-Pritchard, RBS issues global stock and credit crash alert
please read
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/18/cnrbs118.xml
well the fight between different opinions and thus possible trends is on
some more opinions
http://www.investmentpostcards.com/2008/06/20/jeremy-grantham-no-quick-end-to-the-pain/
Well dear reader as mentioned before, I think that stock should be lower. The market is still expensive with PE’s of above 20. The only reason why markets are not much lower is due to the so far successful activity of the PPT. Well we certainly do not know in which direction the market will go over the coming weeks. I therefore like to be on the sidelines and will remain so. Shorting could be a successful strategy but it would be fighting against a team with unlimited access to funds. Well at some point even this team will not be able to keep the markets up. Will it be soon or will it take more time? We will see in due time.
Fixed Income
June 20 – Bloomberg (Jeremy R. Cooke): “U.S. municipal bonds dropped, driving benchmark 30-year yields to the highest since July 2004, as local governments sought buyers for the heaviest debt calendar since October and investors sought to sell holdings.”
Well dear reader shorting the Treasury (or with other words, investing to take advantage of higher future interests or yields) does seem to me as a good idea. So far I am happy with my position
Crisis
Central bank body warns of Great Depression
The Bank for International Settlements (BIS), the organisation that fosters cooperation between central banks, has warned that the credit crisis could lead world economies into a crash on a scale not seen since the 1930s.
In its latest quarterly report, the body points out that the Great Depression of the 1930s was not foreseen and that commentators on the financial turmoil, instigated by the US sub-prime mortgage crisis, may not have grasped the level of exposure that lies at its heart.
According to the BIS, complex credit instruments, a strong appetite for risk, rising levels of household debt and long-term imbalances in the world currency system, all form part of the loose monetarist policy that could result in another Great Depression.
http://www.bankingtimes.co.uk/09062008-central-bank-body-warns-of-great-depression/
Bloomberg: John Paulson says writedowns may reach $1.3 trillion “John Paulson, founder of the hedge fund company Paulson & Co., said global writedowns and losses from the credit crisis may reach $1.3 trillion, exceeding the International Monetary Fund’s $945 billion estimate. ‘We’re only about a third of the way through the writedowns,’ Paulson told the GAIM International hedge fund conference in Monaco today. ‘There are a lot of problems out there and it will continue to be felt through the year. We don’t see any signs of stabilizing.’”
Source: Tom Cahill and Poppy Trowbridge, Bloomberg, June 18, 2008.
Well dear reader, we finally might have arrived at the Kondratieff winter. For all the new readers I recommend to read my musings about Kondratieff on the following link
http://themusingsoffritz.blogspot.com/2007_12_23_archive.html#7635985695724211762
Well dear reader, as you know, in my last musings I wrote about the problems and risks of Lehman Brothers. Well so far they did survive and possible will do so in the future too. Why? Well if you are one of the owners of the FED and one of the first shareholders, you should be able to have access to liquidity when needed. In fact Lehman has already exchanged toxic garbage of bad investments for prime funds from the FED. Having Lehman’s CEO as a board member of the FED does certainly help.
FED
Well we know that the Fed talks tougher than it is capable of acting, especially with a new administration around the corner.
Following a few comments found on the net
“Bernanke has nothing more in mind than taking away the interest rate stimulus, as Greenspan did after 2004 -- gradually and marginally… if that! What’s more, the consensus doesn’t expect any action near term. Ultimately, his resolve rests on the correctness of his premise -- that the risks to economic growth have abated.
“The Fed is not ideologically equipped to tackle rising unemployment and rising prices. Do you really think it is going to hike rates while stocks are reeling?”
Why did the FED bail out Bear Stearns? The problem with the FED is that it is too deeply involved to find a solution on its own. JPMorgan for example is the largest shareholder of the 12 Fed shareholders and holds a 32.25% of its shares. Citgroup owns 20.51%. That means between the 2 they control over half of the Fed’s shares.
Bear bailout shows Fed doesn't follow normal rules for its own books
By Jonathan Weil Bloomberg News Service Wednesday, June 18, 2008
The Federal Reserve is just days away from completing the financing for its bailout of Bear Stearns Cos., after which the central bank will have another big decision to make: how to account for it.
Flip through the footnotes to the Fed's latest annual report, and you'll come across an open secret. The Fed doesn't follow normal accounting rules, as promulgated by any of the major standard-setting boards. Rather, the Fed writes its own, in a document called the Financial Accounting Manual for Federal Reserve Banks.
;refer=columnist_weil&sid...">http://www.bloomberg.com/apps/news?pid=20601039&,br>;refer=columnist_weil&sid...
From www.lemetropolecafe.com
It has come! The FED now wants to go from a free market economy to a communist style Centrally Planned economy where the FED knows better how to run markets than the markets themselves! We know how well that system worked!
This is shocking that this should be proposed but it underlines how desperate the FED, US Government and the Cartel really are. The Wizard of Oz has come out from behind the curtain to say that he completely screwed things up while trying to scam everyone as a wizard hiding behind the curtain but if only people would let him be a wizard in full view then he could do a better job!
If ever there was a time for the lion to find his courage it is now!
Got gold??
QUOTE
http://www.washingtonpost.com/wp-dyn/ content/article/2008/06/18/AR2008061803225.html?hpid=topnews
Paulson To Urge New Fed Powers
Bank Would Help Police Wall Street
Treasury Secretary Henry M. Paulson Jr.'s speech today will call for the Fed to have more authority over Wall Street. (Lawrence Jackson - AP)
Treasury Secretary Henry M. Paulson Jr. plans to call today for the Federal Reserve to be given new, explicit powers to intervene in the workings of Wall Street firms to protect the financial system, adapting his vision of how the financial world should be regulated to reflect the lessons of the collapse of Bear Stearns.
"Our nation has come to expect the Federal Reserve to step in to avert events that pose unacceptable systemic risk," Paulson plans to say in a speech today, according to prepared remarks obtained by The Washington Post. But the central bank "has neither the clear statutory authority nor the mandate to anticipate and deal with risks across our entire financial system."
"We should quickly consider how to appropriately give the Fed the authority to access necessary information from highly complex financial institutions and the responsibility to intervene in order to protect the system," Paulson plans to say, "so they can carry out the role our nation has come to expect."
Over the course of a few days in March, the central bank took unprecedented steps, with Paulson's support, to keep the rapid dissolution of Bear Stearns from causing an international financial catastrophe. The Fed provided financial backing for the acquisition of the investment bank by J.P. Morgan Chase and made emergency loans available to all major investment firms.
Those steps upended decades of precedent for how the financial sector was regulated. They also prompted a broad rethinking of how the government should try to prevent the actions of an individual firm from endangering everyone. Top officials are now, after several months, presenting their thoughts on what should come next; New York Fed President Timothy F. Geithner did so last week, for example, and Federal Deposit Insurance Corp. Chairman Sheila C. Bair did the same in a speech yesterday.
Any new formal regulatory powers for the Fed would have to be passed by Congress.
Paulson's recommendations go beyond those contained in a blueprint for financial regulation that he unveiled shortly after the Bear Stearns rescue. That document, which had been in the works for more than a year, proposed an enhanced role for the Fed in preempting financial crises but offered few details. Today's speech will elaborate, calling for the Fed to be given explicit power to step in whenever a firm poses risks to the system and the authority to demand information from financial institutions so it can better anticipate emerging threats.
Paulson's argument, which is shared by leaders of the Fed, is that even when the emergency Fed lending program for investment banks goes away -- it is scheduled to expire in September, though the central bank could choose to extend it -- financial players will assume they would be bailed out again in a crisis. That means they may be more willing to take risks that could threaten the financial system and thus require greater policing.
"We must limit the perception that some institutions are either too big to fail or too interconnected to fail," Paulson is to say. "If we are to do that credibly, we must address the reality that some are."
In many ways, Paulson's comments echo those by Geithner last week. For example, in today's speech, Paulson is to urge that the trading of financial products called over-the-counter derivatives be standardized. That has been a longtime goal of Geithner's.
Though Paulson and Geithner have collaborated in addressing the financial crisis of the past 10 months, the Treasury Department and the Fed still have some disagreements. Paulson, for instance, would move the Fed's day-to-day supervision of commercial banks to a different regulator in the name of simplification.
Fed leaders counter that their day-to-day regulation of banks gives them important insight into risks to the broader system. Indeed, they argue that the British regulatory system, which does separate the two roles, was a major reason for the run on the British bank Northern Rock last year that contributed to the financial crisis.
Bair, the chairman of the FDIC, made that point in her speech yesterday to the Exchequer Club of Washington. Her agency is responsible only for deposit insurance at regular, commercial banks, but she advocated a new system to handle the dissolution of any investment banks.
"I believe we need a special receivership process for investment banks that is outside the bankruptcy process, just as it is for commercial banks and thrifts," Bair said. "The bankruptcy process focuses on protecting creditors. When the public interest is at stake, as it would be here, we need a process to protect it."
From Enrico Orlandini
There is a very delicate balancing act and governments tend to frown upon it, so I have sought out a secure trading platform. Recently I shift 90% of all my business from the US and Canada to Denmark and Switzerland. I have nothing in the US and very little in Canada. So I now have a secure platform to trade from. Next I need a place where I can think without any threat of outside intervention. That rules out major metropolitan areas and most places with tropical climates. Throughout history colder climates have resisted violent social changes much better than tropical climates, and it is cold there.
Gold
Gold May Rise to $5,000 on Inflation, Schroder Says
June 19 (Bloomberg) -- Gold prices may rise to $5,000 an ounce as investors seek to protect themselves against accelerating inflation, said Schroder Investment Management Ltd., which oversees $277 billion of assets globally.
``You could easily see for the next several years that prices rise not to $1,000 an ounce, but prices rise to $5,000 an ounce or beyond as inflation psychology becomes more and more embedded and people become desperate to have a source of value,' said Christopher Wyke, London-based emerging market debt and commodities product manager at Schroder, which oversees about $10 billion of commodity assets.
Investors are turning to gold for protection as two-thirds of the world's population cope with inflation rates that are climbing to more than 10 percent, Wyke said. Cash and inflation- linked bonds are poor substitutes as low interest rates, coupled with surging inflation, erode the real value of assets, he said.
http://www.bloomberg.com/apps/news?pid=20601012&
amp;sid=aF1439PVhAgk&refer=commodities
Well dear reader, gold at USD 5,000 an ounce does definitely sound well to me and is the preferred musing to my ears. Yes I do believe that we will see Gold at USD 5,000 in a couple of months. Will it take 2 or 6 years? I do not know. However it might be faster that most do expect.
Well dear reader, please keep in mind that your gold holding should be in physical form. If you like to know how or like to know how to check if your holding is so, please let me know.
Tent City USA
Well dear reader, the US has so far for many people been the strongest economy with tremendous opportunities for everybody. Well that might certainly have changed. At least the opportunities are not for everybody anymore. Tent cities in the US? Who would have believed that back a few months? Well dear reader it is now a fact. The tendency is that this unfortunate situation is on the increase. Following a few videos about this situation.
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