It certainly is important not to lose hope. We really need a change. The financial crisis now known as liquidity crisis is a fact. The presidential election does not change that at all. However, after the elections results were official one could clearly feel the positive vibrations everywhere. Long time since one single person has made so many people happy. Long time since somebody gave hope to so many. It truly seems to be a historic moment. Well dear reader I wish the new elected president all the luck and a lot of success. I cross my fingers that he will be able to take office in January. Once in office he will need all the support he can get. If good wishes can help so let it be.
Yes hope came back. Hope for a positive change. This hope might be the seed for the change. So many things have to be fixed and more things to fix will come to the surface. There is certainly a lot of work to do. My guess is that the mess to clean up will be huge. It will without doubt be a though job for the new President.
Let’s see what happened last week. First let’s see what www.prudentbear.com reports as overview.
For the week, the S&P500 fell 3.9% (down 36.6% y-t-d) and the Dow declined 4.1% (down 32.6%). The Transports were hit for 5.7% (down 19.8%) and the Morgan Stanley Cyclicals 5.4% (down 49.5%). So-called defensive stocks held up better, with the Utilities about unchanged (down 30.8%) and the Morgan Stanley Consumer index declining 2.2% (down 25%). The broader market gave back some of last week's outperformance. The small cap Russell 2000 dropped 5.9% (down 34%), and the S&P400 Mid-Caps fell 5.1% (down 37.1%). The NASDAQ100 dropped 4.7% (down 39%), the Morgan Stanley High Tech index fell 5.7% (down 42.9%), and the Semiconductors sank 6.8% (down 45.3%). The Street.com Internet lost 4.2% (down 35.9%), and the NASDAQ Telecommunications index declined 3.8% (down 39.9%). The Broker/Dealers were hit for 7.4% (down 59.6%) and the Banks 8.2% (down 39.4%). With Bullion recovering $13, the HUI Gold index gained 3.7% (down 50.9%).
Well dear reader that means that although hope came back the bear won the week
well let's see what was hot and what not
Well dear reader, let's start the overview with a look at the most conservative investment
Gold
Well dear reader have you recently mused about the question why most Central Banks still hold gold reserves although they want us to believe that gold is a barbaric relict? Yes some have sold part of their reserves, some even sold it when prices were the lowest (Bank of England due to the pressure of PM Brown who at that time was the Finance Minister) and certainly some have leased out the gold and possibly will not get it back (US). Yes several Central Banks reduced this way their reserves. But why do they still hold a considerable amount of gold as reserves? What is the reason why historically seen, those countries holding important gold reserves did much better than those that did not hold gold at all? Why are the Central Banks that do not sell their reserves doing better than those selling?
Well it simply might be that holding some kind of gold reserves makes sense.
If holding gold makes sense and over time more and more people will find out (although maybe too late for them) and therefore demand and prices will increase, it might very well be that the actual prices are a real bargain. Everybody being able to get physical gold at a price around 750 USD per ounces might be very happy in a couple of months.
Gold is money
Why have Gold and Silver been accepted as money over more than 6,000 years? What other currency has survived 6,000 years and has maintained purchasing power over time? Isn't that conservative? Isn't holding something of true value more conservative than holding debt? Holding debt you basically hope that the other party will be able and willing to repay at some point in the future. If you are lucky and you are repaid it does not mean that there will not be any losses. Inflation might have eaten all your income and your asset might be worth less or might buy less. (The US inflation according to www.shadowstats.com see following chart). Accepting the fact that inflation is running high, yields on quality bonds are simply far too low.
Anybody holding gold has outperformed inflation over the past 7 years while holders of bonds have not. Of course the same is true if you compare a gold holding to any other investment category. Well the question of course is if that will be the case for the next couple of years too. Well you know already what I believe.
Well dear reader there is a fight for physical gold going on. India the biggest physical gold buyer nation keeps up the high demand. It seem like it will get more difficult for the Indians to get hold on physical gold. The banks that so far delivered the gold to India have now reduced their delivery rates giving some rather strange reasons for doing so. This to me indicates that we have either a real shortages of physical gold or that gold is kept of the market on purpose. Got your physical already? Are you sure that what you hold is in physical form. If you have any questions in regard to physical, let me know it by sending me an e-mail
Following an article about the stopping/reducing of physical delivery to India.
MUMBAI: with the credit crisis having a direct impact on funding costs and drying up of interbank credit lines, a few foreign banks have altogether s topped supplies of gold to Indian banks in a bid to reduce their exposure to Asian markets.
This comes at a time when global liquidity pressures have eased considerably and local demand for the yellow metal has picked up as prices have come off the highs witnessed in the early part of October. Dealers from many banks told ET that supplies have been squeezed with banks, such as Standard Bank of South Africa, one of the main suppliers, Commerzbank and UBS, stopping supplies altogether or reducing them on a consignment basis.
"Both Commerzbank and Standard Bank have stopped supplies on a consignment basis to Indian banks since October, while UBS has reduced its exposure," said a bullion dealer from a public sector bank.
http://economictimes.indiatimes.com/Bullion/Foreign_banks_cut_down
_gold_supply_to_India/articleshow/3674557.cms
-END-
Following the opinion of Enrico Orlandini from his latest monthly newsletter
Quote
What most people fail to realize is that we live in unrealistic times. By that I mean that we have huge deficits, worthless fiat currency whose supply is increased on a whim, historically low interest rates, and a country that has engaged in nation building using other people’s money. All of this will lead to the collapse of fiat currency, not just the US dollar but all currencies, and gold will be the only real money. You must hold gold, and silver, in order to assure yourself that your wealth is protected. What’s more you will have to go to great lengths in order to prevent confiscation. The worse things get, the more governments will try to take your gold away from you. It just stands to reason. They are slowly taking away your freedom, and they have been eroding the value of the dollar since 1913, so the confiscation of gold is a logical extension of that philosophy. I have been telling clients for four years to simply buy gold on a regular basis and regardless of price, and just hide it. In a year or two, you’ll be glad you did.
Unquote
Before quoting James Turk, a note from my side. As mentioned in previous posts, it is getting more and more difficult to buy physical gold and silver. That shows me that it is important to hold some in physical form.
James Turk of www.GoldMoney.com provides additional perspective. He reports that London has made it difficult to locate bonded silver bars (which avoid the UK value added tax). He at GoldMoney has changed the London pricing to encourage customers to buy silver in Zurich instead, where price markup over spot remains unchanged. He anticipates a backwardation event soon, with forward prices below current prices. The big spike in gold leasing rates in recent days suggests that backwardation could occur at any time. He said, "Though I have always considered backwardation in gold and silver a theoretical possibility, I never thought it would happen in practice. Backwardation would mean that conditions are so stressed that buyers would be willing to pay more for metal at the spot price than a future price. It would mean, among other things, that the future markets have been discredited and buyers want the 'real thing' and not someone's promise, which is becoming an increasingly important strategy to avoid counter-party risk." He went on to mention that the shortage of coins and bars has led to extraordinarily high premiums for coins and small bars, a sort of backwardization. These high premiums for coins and small bars indicate that the spot price for the precious metals is artificially low. Pressure builds. The gold cartel cannot make excuses and escape severe market events if shortages occur or defaults are rumored in the LBMA market (London Bullion Market Assn). Such events would result in radical gold price movement, just like what happened in March 1968
Unquote
More about Gold
from http://www.jsmineset.com/
It is quite apparent that physical gold coins are very difficult to get anywhere in the US and in many parts of the world. I have called a few local shops to test for availability and there is none. The best alternative I got was a large premium over spot on a bullion gold ounce, to be paid to the dealer up front and then a long wait time for delivery. The days of walking into a shop and purchasing a coin or two are gone, and we don’t know if or when those days will return.
Internet coin dealers are in the same boat, not many available and high premiums and wait times for all types of bullion and numismatics. It seems that the logical extension of this phenomena is spreading to the Comex in the US. Ultimately there will be a showdown for gold in lieu of the intense worldwide demand for physical. Nothing can take the place of the real thing. Gold ETFs by extension may have difficulty in getting physical gold to back their deposits, they may limit new investors or change their rules to hold less gold per outstanding share. Gold ETFs may experience a period of intense scrutiny about what they truly own, which may cause investors to shy away from them as gold investment vehicles.
When push comes to shove and gold finally makes its move up and through the old highs from this year, it will be understood by everyone that gold is in a real bull market. It will be easily understood by the man in the street as he will see the financial upheaval and wealth destruction talked about here on JSMineset. The dollar’s buying power will plummet and the small investor will realize that gold is what he will need. Inflation will be unable to hide any longer.
And if the coin shops are empty and there is no real way to get gold in hand, there will be only one quality substitute, Gold Stocks and Gold Mutual Funds, and possibly not Gold ETFs. Senior, Mid-Tier, and Junior gold stocks will skyrocket as there will be no real physical way for the average investor to participate in the Gold Bull Market that is coming. The watertight doors are closing: gold coins, small gold bars– these door are now shut, (large bars next?), (ETF’s next?).
Quality gold stocks are selling at 2003 gold prices, some at 2001 giveaway prices. Even though the ship is listing, there are still lifeboats available on this ship! Soon these boats will be lowered away as the last vehicles of gold financial survival, and even then one must take the precautions set out here on JSMineset to distance yourself from financial entities that are between oneself and one’s assets.
In my opinion, time seems short and the band on deck is playing a happy tune.
Ned Schmidt on Gold
Gold Thoughts
In the past few weeks, U.S. Federal Reserve has joined with U.S. Treasury in an attempt to remedy the financial fiasco. In that effort, the Federal Reserve's balance sheet has ballooned by more than 50%. Never in peace time history has the central bank for the world's reserve currency so intentionally implemented policies that will destroy the value of that reserve currency. As a consequence of that massive monetary ease, the U.S. money supply, M-2, is now growing at a double digit digit rate. That monetary growth is readily evident in the first graph. The deflationists can now quite worrying, the quantity of U.S. dollars is rising and the value of those dollars will therefore fall.
http://www.safehaven.com/article-11733.htm
As long as gold holds the bottom trend line the long term trend remains intact.
Gold priced in Euros is doing much better than gold priced in U.S. dollars.
Silver
Silver, Gold and paper money
Quote
I began a recent presentation before a large group of cattle producers (R-CALFUSA) by showing a paper dollar bill and a silver coin. The words “one dollar” is inscribed on both the coin and the paper, yet the paper dollar will only pay for about one quart of gasoline at today’s prices, while the silver dollar will pay for well over five gallons. I explained to my audience that consumer prices are not high – the paper dollar has lost most of its value. It makes no difference how high the price of gasoline goes, a silver dollar will continue to buy gas for 20 cents a gallon, exactly the price gas was during the Great Depression. Based on 1940 prices, a paper dollar is worth about two pennies.
Unquote
Please read on
http://www.newswithviews.com/brownfield/brownfield67.htm
Liquidity crisis. More money needed!
IMF needs hundreds of billions of dollars
Prime Minister Gordon Brown said the International Monetary Fund (IMF) needs "hundreds of billions of dollars" to help countries at risk of collapsing amid the world financial crisis.
Brown, who is in Saudi Arabia, told reporters Saturday during a four-day tour of Gulf states that countries which had benefited from recent high oil prices could contribute to the plan.
Brown also stressed that Britain welcomed investment from Gulf sovereign wealth funds "as long as they play by our rules and operate in a commercial manner."
http://afp.google.com/article/ALeqM5hsV_sxBHEbCSUWY68A3AAMp1qMwQ
Wow this Brown is without doubt a special guy. What he really is saying is that he or they need direly the money from the Saudis. That as such is no surprise at all. However I must admit that he surprised me by saying that they will only accept the money needed to survive if the Saudis play according to the IMF rules or with other words to the rules of the receiving party. Looks to me like a real world Monopoly. Over the past few months, we certainly were able to see firsthand what it means to play according to their rules. As these rules resulted in billions of ongoing losses, I ask myself if we really can trust them to do better this time. Well all those investors that poured billions into troubled banks had to find out the hard way that their investment decision has been one of the worst ever taken. They found out the hard way that the rules have not changed at all. So I wonder how the Saudis could trust those guys now. Well so far, this Monopoly has only been to the benefit of a handful of gangsters. Yes dear reader, a handful of gangster. A nice business suit does not change the fact that those guys steal the Central Banks and the taxpayers. Contrary to their counterparts decades ago they do not need to use guns anymore.
Well anyway dear reader, the financial mess seems to be a dark hole sucking in money like hungry……
Money is needed everywhere.
Please read on
What Happens when Countries Go Bankrupt?
First it was mortgage lenders. Then large banks began to wobble. Now, entire countries, including Ukraine and Pakistan, are facing financial ruin. The International Monetary Fund is there to help, but its pockets are only so deep.
http://www.spiegel.de/international/business/0,1518,588419,00.html
November 7 – Washington Post (David Cho, Peter Whoriskey and Neil Irwin): “The federal government is preparing to take tens of billions of dollars in ownership stakes in an array of companies outside the banking sector, dramatically widening the scope of the Treasury Department’s rescue effort beyond the $250 billion set aside for traditional financial firms, government and industry officials said. Treasury officials are finalizing the new program, which could ultimately involve hundreds of billions of the $700 billion rescue package, though the initiative is unlikely to be announced until the end of next week at the earliest.”
The Fed on the other side is getting more and more a loose gun:
“Adjusted monetary base growth is Weimar-like, 785.7% annualized for two maintenance periods (four weeks).” See the following chart
More general information
John Williams (Shadow Government Statistics): US economy is in a severe recession
"The reported 'advance' growth estimate usually is massaged so as to come in close to consensus, in this case a little bit better ...
"With real retail sales, housing, nonfarm payrolls, new orders for durable goods and industrial production all showing quarterly and annual growth patterns never seen outside of a recession still in deterioration, GDP reporting eventually should show a string of quarterly contractions, with the recession dating back to fourth-quarter 2006, long before the exacerbation of the current systemic solvency crisis. ... official GDP surrogates such as Gross National Product (GNP) and Gross Domestic Income (GDI) have shown varying patterns of quarterly contractions. GDP is the theoretical equivalent of GDI (consumption side versus income side) and is GNP net of the trade balance in interest and dividend payments.
"Based on existing GDP, GDI and GDP reporting, the following quarters have shown inflation adjusted quarterly contractions: 1Q07 (GNP), 4Q07 (GDP), 1Q08 (GDP/GDI), 3Q08 (GDP)."
More about the general situation from Darryl Robert Schoon
THE IMF AND THE US
Because the US, the world’s lender of last resort, is itself bankrupt, the world economy is in danger of collapse. The IMF has now been asked to bail out Iceland, Pakistan, Hungary and Ukraine. The US may very well be the next IMF client.
What has happened this fall has eclipsed everything that has gone before. What will happen next year will eclipse what is now happening this fall. The crisis is growing as the end-game of capitalism approaches its end irrespective of what central banks try to do.
This time the bankers overstepped themselves in such a way they have brought destruction not only on society but on themselves as well. It is only right that they should suffer too—as, after all, it is they who caused our problems.
It is unfortunate that society is being forced to lessen the burden on bankers even as bankers continue to indebt society. But, then again, that’s what government is for—to act as the bankers’ agents in the continuing indebting of nations, businesses, producers and savers.
Markets will only be free when the virus of bankers’ debt-based paper money is permanently removed from commerce and the present tyranny of banker-controlled government is ended.
Accounting gimmicks
Well dear reader I mentioned a few times in my previous posts that one has to study carefully the balance sheets of the financial institutions. Especially the way they book assets in level II and level III. I was writing about using accounting tricks to make some assets seem more valuable.
Of course it is in the interest of the financial institutions to show the real picture in a better light. The public on the other hand would love to know the truth and nothing than the truth. So far this was more like wishful thinking. The following article informs about the fight to change accounting rules in a way that would allow more hiding through mark to fantasy.
Mark-to-market manipulation
Commentary: Efforts to change accounting rules would set back reform
NEW YORK (MarketWatch) -- Mark-to-market -- or fair-value -- accounting has one big problem: Some very powerful people are trying to change it.
http://www.marketwatch.com/news/story/Some-Wall-Street-want-a/story.aspx?guid={F1EE1BBC-4725-4D27-A7B5-4927392A5218}
some more about accounting magic
Level III
Following dear reader a report about Citibank moving assets to Level III. If they say that they reduced their level III assets is basically more a bookkeeping act than really having reduced the assets. Please take note that Level III and most of Level II assets are assets that do not have a liquid market. The valuation of these assets is done according to prices Citibank (of course the same is true for all financial institutions) believe or wish to be correct. As there is no market these prices are pure fantasy (mark to fantasy). Experience over the past weeks shows clearly that assets booked in Level II or III cannot be sold at prices according to the books and therefore had to be marked down considerably. Sales were only possible at huge losses.
Citigroup moved $13.3B trading secs, loans to level 3 in third quarter
Citigroup Inc. 13.65, +0.54, +4.1%) on Friday disclosed that it transferred $13.3 billion in trading securities and loans into the Level 3 category in the third quarter, indicating that the assets' valuation was based at least in part on company models.
Those trading securities and loans included asset-backed securities, warehouse loans backed by auto lease receivables, and certificates issued by the U.S. credit card securitization trust, Citigroup said in its quarterly filing with the Securities and Exchange Commission.
http://www.marketwatch.com/news/story/citigroup-moved-133b-trading-secs/story.aspx?guid={CDEF348F-0228-4568-A3C3-DCFFC72C2100}&siteid=yahoomy
Well dear reader, with or without accounting rules in order to hide the real situation, it seems like the market knows something or does assume something. Please see the following chart that shows the risk for failures of banks according to the CDS margins.
AIG, one of the champions to paint balance sheets well
Well dear reader a good example of hiding the real situation might have been AIG. Following a comment that certainly hits the point
The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October. Some analysts say at least part of the shortfall must have been there all along, hidden by irregular methods of accounting. "You don’t just suddenly lose $120 billion overnight," said Donn Vickrey of Gradient Analytics, an independent securities research firm in Scottsdale, Ariz. Mr. Vickrey says he believes A.I.G. must have already accumulated tens of billions of dollars worth of losses by mid-September, when it came close to collapse and received an $85 billion emergency line of credit by the Fed. That loan was later supplemented by a $38 billion lending facility. But losses on that scale do not show up in the company’s financial filings. Instead, A.I.G. replenished its capital by issuing $20 billion in stock and debt in May and reassured investors it had an ample cushion
Enrico Orlandini from www.dtanalysis.com opines as follows:
By the way, AIG announced that
the US $175 billion bailout is insufficient, and they’ll need more money.
Does it bother anyone that their market cap is just US $5.1 billion and if
you sold the company at a fire sale you couldn’t even raise that amount?
Like AIG you can say the same thing about Citibank, Merrill Lynch,
Wachovia, GM, GE, Ford, and a host of others.
By Carol D. Leonnig
Washington Post Staff Writer
Monday, November 3, 2008; A18
A number of financial experts now fear that the federal government's $143 billion attempt to rescue troubled insurance giant American International Group may not work, and some argue that company shareholders and taxpayers would have been better served by a bankruptcy filing.
The Treasury Department leapt to keep AIG from going bankrupt on Sept. 16, and in the past seven weeks, AIG has drawn down $90 billion in federal bailout loans. But some key AIG players argue that bankruptcy would have offered more structure and greater protections during a time of intense market volatility.
AIG declined to comment on the matter.
Echoing some other experts, Ann Rutledge, a credit derivatives expert and founding principal of R&R Consulting, said she is not sure how badly the financial system would have been rocked if the government had let AIG file for bankruptcy protection. But she fears that the government is papering over the problem with a quick fix that was not well planned.
"What we see now are a lot of games by the government to keep these institutions going with a lot of cash," she said. "This is to fill holes in companies' balance sheets, and they're trying to hold at bay the charges that our financial system is insolvent."..
http://www.washingtonpost.com/wp-dyn/content/article/2008/11/02/AR2
008110202150.html?nav=rss_world
Financial institutions
The domino stones are still falling
Florida's Freedom Bank Is 17th in U.S. to Be Closed This Year
Nov. 1 (Bloomberg) -- Freedom Bank of Bradenton, Florida, became the 17th U.S. bank seized by regulators this year as the deepest housing slump since the Great Depression triggers record foreclosures and mounting losses.
Freedom, with $287 million in assets and $254 million in deposits, was shut yesterday by the Florida Office of Financial Regulation and the Federal Deposit Insurance Corp. was named receiver. Fifth Third Bancorp of Cincinnati will assume the deposits and buy $36 million of assets, the FIDC said. Freedom's four offices will open Nov. 3 as Fifth Third branches…
Well more stones did fall last week
SAN FRANCISCO (MarketWatch) -- The Federal Deposit Insurance Corp. and state regulators seized Los Angeles-based Security Pacific Bank late Friday -- one of two banks to fail that day and the 19th to fail so far this year.
Deleverage
Deleveraging is the key fundamental macro construct of the moment. Deleveraging in the hedge and broader levered speculating community globally has been nothing short of stunning since late September. The magnitude of leveraged positions that still need to be liquidated ahead, the rate at which this liquidation will occur, and the time required until the conclusion of this credit cycle reconciliation process plays out are all unknowns
Well dear reader the following article is in my opinion a must read. It sounds to me more like a 3rd world country.
The US bail-out amounts to a strings-free, public-funded windfall for big business. Welcome to no-risk capitalism
Well dear reader on the following link you find another must read article
The End of Prosperity
The Worst Is Yet to Come
by Stephen Lendman
http://www.globalresearch.ca/index.php?context=va&aid=10771
Credit Default Swaps
Well dear reader Credit Default Swaps is a playground for speculation and certainly an ongoing source for troubles.
To start with information about CDS please read carefully the article on the following link
http://www.nytimes.com/2008/11/02/business/02global.html?_r=2&oref=slogin&oref=slogin
What does the article show us? Well first of all it shows us again that speculation is out of control. Secondly it shows us that for profits sake some people sell/offer/advice their clients to invest in products that nobody really understands and are high risk. Thirdly it shows that greed is dangerous and finally it shows us that the financial world is now truly global. Global, not only in the positive sense but in the negative too.
More about CDS
GE Capital, Merrill
In total, about $15.4 trillion of transactions were linked to individual corporate, sovereign and asset-backed bonds at the end of October, the DTCC said. About $14.8 trillion was tied to indexes.
Among companies, GE Capital Corp., the finance arm of General Electric Co., New York-based Morgan Stanley, Merrill Lynch & Co. and Goldman Sachs Group Inc. had the biggest dollar amount of contracts tied to their debt on a net basis after Deutsche Bank, Germany's biggest bank, the DTCC said. New York- based Merrill agreed in September to sell itself to Bank of America Corp.
Does the above information indicate something? Well if someone feels to take a kind of insurance or hedge against a credit default, it is because that particular person believes that there is a risk for a credit default. Well anyway the question will always be if the counterparty really will be able to pay once payments are due.
Please read the article on the following link
http://www.bloomberg.com/apps/news?pid=20601087&sid=auQSTZnaO5JY&refer=home
Well dear reader the dike has many leaks. Another leak to close is the Social Security Crisis.
Baby Boomers
Call this a crisis? Just wait
By David M. Walker, former U.S. Comptroller General
It officially began earlier this year when teacher Kathleen Casey-Kirschling of Maryland became the first baby-boom retiree to collect Social Security benefits. She will be followed by about 78 million more boomers over the next 17 years.
The entitlements due from Social Security and Medicare present us with that frightening abyss. The costs of these current programs, along with other health-care costs, could bankrupt our country. The abyss offers no assets, troubled or otherwise, to help us cross it.
http://money.cnn.com/2008/10/28/magazines/fortune/babyboomcrisis_walker.fortune/index.htm
Following chart about debt is without doubt interesting. Especially taking into account that it is calculated using the official GDP numbers. of course taking the real GDP numbers it would look a lot worse.
Frozen
Reserve Funds investors still waiting for their money
At least 400,000 people, and perhaps as many as a million, can't get access to their savings, a problem that has quietly persisted in spite of widely publicized federal efforts to restore confidence in money-fund investments.
Some of these customers -- who, like most Americans, assumed their money funds were as safe and accessible as bank accounts -- are getting desperate.
http://meganmcardle.theatlantic.com/archives/2008/10/reserve_funds_investors_still.php
Currency
One of the driving forces behind the various asset bubbles around the world has been the yen carry trade. Traders borrowed the yen at 0.5% and invested in higher-yielding assets around the world. There has also been a carry trade prevalent in the U.S. dollar and Swiss Franc.
Presently, the Yen has been the strongest currency worldwide; with the dollar close behind. Traders that borrowed yen and dollars to "invest" in higher yielding instruments are now scrambling to settle their trades. The demand for dollars and yen has been huge. Hence the quick and violent moves the currency markets have been experiencing.
The yen/euro cross has been in a parabolic blow-off. When the yen is strong stock markets are weak, as traders are resistant to take on risk. When the yen falls traders are more willing to take on risk and markets go up.
Look for the gaps to be filled and stocks to rally. A MA crossover appears to slowly be developing, which would result in the yen up and stocks down.
USD
One factor is the traditional flight to the reserve currency that results from panic. People are simply doing what they have always done. Pam Martens predicted correctly that panic demand for U.S. Treasury bills would boost the U.S. dollar.
The other factor is the unwinding of the carry trade. The carry trade originated in extremely low Japanese interest rates. Investors and speculators borrowed Japanese yen at an interest rate of 0.5 percent, converted the yen to other currencies and purchased debt instruments from other countries that pay much higher interest rates. In effect, they were getting practically free funds from Japan to lend to others paying higher interest.
http://www.creators.com/opinion/paul-craig-roberts.html?columnsName=pcr
Reading the following article I must say that I cannot not see how the USD could stay strong. The interest on this $2.1 Trillion [so far] or excess debt alone will eventually swamp the budget. As mentioned before the USD strength is highly correlated with US money coming back to the US from overseas investing and foreign money coming to the US for a safe haven during a crisis and of course due to the deleveraging. Well I think it is safe to believe that these are short term events, it looks like the dollar’s day in the sun is drawing to a close and soon it will reverse.
RPT-PREVIEW-US Treasury to expand debt arsenal as deficit rises
Facing the need to borrow up to a staggering $2.1 trillion in the current fiscal year to fund economic rescue programs, the U.S. Treasury is expected to significantly expand its debt securities arsenal.
http://www.reuters.com/article/bondsNews/idUSN0336150620081104
and Jim Rogers opinion about the USD
“The fact that the dollar is gaining rapidly is only temporary”, Rogers says. “All hedge funds were short on the dollar and because of the appreciation of the dollar there is a short squeeze for the dollar. Managers have to close tier positions and they have to buy dollars instead.” “This is temporary, within a year you have to get rid of the dollar. Fundamentally it is a drama.”
Furthermore he mentioned:
America is bankrupt, according to investment legend Jim Rogers. "The American government bonds are the world’s last bubble and the price of commodities has to increase."
http://www.rtl.nl/(/financien/rtlz/nieuws/)/components/financien/rtlz/2008/weken_2008/45/1104_0945_jim_rogers_america_is_bankrupt_english_version_entire_interview.xml
Equity
Well dear reader it seems that Contrary Investor has the same opinion as I have about the long term outlook of the equity markets:
Quote
But long term I am not optimistic about the stock market’s ultimate prospects. Old problems have not yet been solved, and there are new problems still undetected on our radar scope. State and local governments are in terrible financial shape. I expect all market rallies for in the foreseeable future will prove to be bear market rallies on the way down to the final bottom.
Unquote
from Contrary Investor
http://www.safehaven.com/article-11721.htm
Every major US equity index reached and exceeded their respective 200-month moving averages to the downside in October
charts DJ, SPX und Nasdaq
What prompts us to have a bit longer term view of life are actual equity market levels seen in mid-October, especially as this applies to the relatively broad S&P 500. The charts above of the S&P, Dow, NASDAQ and Wilshire date from 1980 to the present. What we are chronicling in these charts are the 50% and 61.8% Fibonacci retracement levels over that entire period. As you'll see in the first chart, the low hit by the S&P on Friday October 10 shortly after the open, which touched down at a level of 839.8, was all of three tenth's of one percent away from the 50% retracement level of the entire 1980 to present period. Yes, as of the open on October 10, the S&P had essentially given up half of its entire 28 and three quarter year price gain. Relatively dramatic when characterized as such
Unquote
Well dear reader please read the report above. Interesting is the case of the Nikkei (see chart below). Once the Nikkei fell below the 200 day moving average, this level became strong resistance. Might it be the case for the DJI, SPX and Nasdaq too? Or might the forced deleveraging of the speculators (hedge funds) be an abnormality and therefore the old rule does not hold? Well time will tell.
Commodities
Gold recovered 1.8% to $737, and Silver rallied 3.0% to $10.02. December Crude sank $6.79 to $61.02. December Gasoline dropped 9.7% (down 45% y-t-d), while December Natural Gas was unchanged (down 9% y-t-d). December Copper declined 6.5%. December Wheat fell 2.8% and Corn 6.5%. The CRB index dropped 4.3% (down 28.4% y-t-d). The Goldman Sachs Commodities Index (GSCI) sank 6.5% (down 31% y-t-d).
Commodities
Well dear reader reading the following line, I truly doubt that we will see low commodities prices for a considerable time. China does what I have expected. Please read on:
China approved on Sunday a massive stimulus plan worth nearly $600 billion through 2010 to boost domestic demand as part of a global push for measures to soften an expected recession in many countries
http://www.reuters.com/article/newsOne/idUSTRE49N5VU20081109
There are 6.5 billion people on this planet and rising; all these individuals need food and basic necessities that cannot be cut back on; some examples are rice, wheat, sugar, cocoa, oil, natural gas, copper, zinc, silver, coal, electricity, and the list goes on. Hence there is simply no way long term demand for commodities is going to dry up. Right now one could state that the entire world is essentially on sale; in fact we have a fire sale going on right now, where everything is being sold at a huge discount to its true intrinsic value.
Traders have to remember that commodities are dug out of the earth or produced as in growing them (agricultural commodities) and not just created out of thin air. The more severe this crunch gets the more mines will scale back their operations (it takes a long time to re open mines that have shut down) and when demand surges again, as it will, it will take time to re open these mines and in the meantime prices will soar. In the gold sector, supplies have been declining for several years in a row and no major new fields have been discovered. The uranium sector has been beaten down so much that many companies will soon start to shut down operations and if the current trend continues many might be put out of business; this is going to take place just when firms should be deploying huge amounts of money into exploration in order to be in a position to meet long term demand. In the oil sector, OPEC will probably over react and cut down supplies a lot more than they should. When one couples this with the fact that worldwide production of oil is falling it is a long term recipe for significantly higher prices and believe it or not, the high of 147 will look like a joke in the years to come. We remember how everyone thought we were nuts when we predicted oil would trade past 45, when it was trading under 30 dollars and then past 90 and then 120. Our conservative high end estimate for oil is still 300 dollars per barrel.
A potential glimmer of light amidst a dismal global outlook with China determined to keep it that way although there's no assurance it can. The reason its stock market slumped like most others. However, it may rebound sooner given the government's commitment to big infrastructure spending increases. With its "embarrassment of riches" according to The Economist. Growing "at a staggering rate" says its Intelligence Unit. Its huge $1.75 trillion in foreign currency reserves. Likely to top $2 trillion by yearend. That can be used for roads, airports, nuclear power plants, hydro power stations, and more. To create new jobs for laid off workers. As many as possible. What America should do to stimulate growth. Not commit billions for corporate acquisitions. Bailouts that won't work. That will harm the economy, not heal it. The reason even in today's climate China's star is rising. In the US, it's growing dim.
Commodities and Water
Following a good example of what is in the line. Well I do certainly expect higher agricultural commodity prices over the next couple of months
California said Thursday that it plans to cut water deliveries to their second-lowest level ever next year, raising the prospect of rationing for cities and less planting by farmers.
The Department of Water Resources projects that it will deliver just 15 percent of the amount that local water agencies throughout California request every year
Farmers in the Central Valley say they'll be forced to fallow fields, while cities from the San Francisco Bay area to San Diego might have to require residents to ration water.
http://news.yahoo.com/s/ap/20081031/ap_on_re_us/california_water#full
Oil
Well dear reader following an article about Peak Oil. Yes, as mentioned several times, Peak Oil is real.
The IEA recently announced that global depletion from existing oil fields is running at a shocking 9.1%, yet the price of oil fell sharply on this news! According to the IEA, the energy industry would need to invest US$350 billion per annum in order to check the depletion rate but even then, depletion will occur at 6.4% per annum! This is a huge decline and means that we would need to find 3 new Saudi Arabias in the next 5 years to compensate for the depletion due to 'Peak Oil'. I don't know about you, but in the past 100 years, we have only found a single Saudi Arabia so the chances of finding new supply of 25 million barrels per day by 2013 are slim at best. Accordingly, I am convinced that the price of oil will trade in the several hundreds of dollars per barrel price range within the next 5 years. So, this is the final chance you will get to buy energy on the cheap.
UK will face peak oil crisis within five years, report warns
http://www.guardian.co.uk/environment/2008/oct/29/fossil-fuels-oil
Well dear reader, we had and still have to face the credit crisis and liquidity prices. We did not yet have to face other possible crisis's that loom at the horizon. Peak Oil will be one of those. Peak Oil will change our world. Yes dear reader that will be the case. The situation with reduced shipping of goods or reduced production of goods due to difficulty to get credits or L/C's shows more or less what I have expected to be the situation with Peak Oil, once it hits hard. Maybe an oil price of above USD 200 per barrel will lead to that. Yes that possibly will lead to a reverse of globalization. I do expect that at some point in the not too distant future, local production will become more important because it will simply be too expensive to import from far distances. Do we still have the knowledge to produce those products for which we outsourced the manufacturing to China or other Asian countries?
Well dear reader, although I do believe in Peak Oil and although I do believe that Peak Oil will definitely impact oil prices, I wait with new oil investments for the moment being. Why? Well because I believe that oil prices will not go up soon. Lower price are possible. Once we have passed 1st quarter 2009 we will have to look at the fundamentals again. Well in case you intend or need to accumulate oil or related products, it might be OK to start to accumulate step by step. We really never will know when we are at or close to the lowest level. We only will know it some time in the future looking back.
Accumulating step by step will allow you to get an excellent average cost price.
some information about oil
Chevron Project Offers Glimpse Of Future: More Work, Less Oil
What does all the effort buy? Chevron believes it can extract about 270 million barrels out of Frade over the next 18 years. The world guzzles that much every three days.
The global economic slowdown is shrinking demand for crude oil and has caused oil prices to plummet since this summer. Pressure on the global oil industry to find new sources of crude is receding, but the daily struggle of replacing production declines in aging fields is a problem that isn't going away. And cuts to capital budgets to cope with the downturn in prices could hobble the industry's ability to ramp up supply when demand returns. The result could be "a serious supply crunch" in as little as two years, says Paul Horsnell, commodities research head for Barclays Capital.
http://online.wsj.com/article/SB122531663876381697.html?mod=djkeyword#
Keith Johnson, Environmental Capital, Wall Street Journal
Crude oil futures continued down on Friday, spooked by the dim outlook for the U.S. economy. That’s precisely what makes it likely oil prices will rebound next year.
Big oil companies are already finding it harder to maintain, let alone increase, production. Chevron doubled its third-quarter net profit, but said production fell 5.7% in the quarter, after ExxonMobil reported an 8% production drop yesterday.
Falling oil prices are only going to accelerate that trend, analysts warn, at a time when OPEC is accelerating output cuts and production declines at oil fields around the world is apparently increasing.
Big oil as a whole needs oil prices of about $82 a barrel next year to fund their plans for new investment in oil exploration and production, Credit Suisse says in a new report. Right now, the consensus forecast of about $75 oil means overall, oil companies will suspend some marginal projects, as Shell has already announced with Canadian tar sands.
If oil stays around $60 a barrel, the funding shortfall for Big Oil will increase to more than $70 billion, CSFB says, as oil companies mothball a range of tricky new projects. That represents about 20% of planned capital expenditure for big oil companies in 2009.
Not everybody would be affected equally. ExxonMobil can weather oil prices at $50 a barrel, the bank says, while big Chinese oil companies are praying oil returns to record levels north of $140.
http://blogs.wsj.com/environmentalcapital/2008/10/31/peak-oil-are-oil-prices-destined-to-rise-again/
The following comment is from the ASPO monthly newsletter
A King’s Response We do not of course know what occupies the mind of the King of Saudi Arabia but we can imagine some of the thoughts that may command his attention. He is the son of Ibn Saud, the founder of the Kingdom, whose frontiers were not finally defined until 1932. He probably recalls the family history, knowing how his father was running short of money in the Great Depression, when the income from pilgrims coming to the holy shrines dried up. That problem was solved a year or so later when Standard of California (now Chevron) sent 35 000 gold sovereigns in return for rights to look for oil in the Kingdom. The value of gold was then evidently appreciated.
Some finds were soon made but the new oil income did not flow strongly until after the Second World War with the opening of the Ghawar Field in 1948, which proved to be the world‟s largest, The King has probably been impressed by images of American arms and power, so it made eminent sense to invest any surplus income on Wall Street. Gradually the wealth of this large royal family grew, although the value of Saudi production fluctuated with world prices reflecting external economic and political circumstances. In 1980, the country produced 3.6 Gb, which, with an oil price of $93 (in 2007 dollars), gave an income of $335 billion, far in excess of the country's needs. But then world recession cut the demand for oil and lowered its price. In 1985, production had been cut back to 1.2 Gb, yielding an income of $65 billion, with worse yet to come when prices slumped to $26 in 1988. Prices remained low during the 1990s, but the country compensated for the loss by increasing its production to earn an average of $75 billion a year. We may suppose that about $50 billion a year were spent on the country itself with the balance being invested on Wall Street by the large royal family. Prices have firmed during the past eight years allowing the Kingdom to hold production stable at an average 3.2 Gb a year. In 2007, its income amounted to $232 billion. If domestic costs continued at about $50, it meant that $182 made its way to Wall Street. This demand for investment probably far exceeded the actual value of the underlying assets, contributing to an unjustified surge on the Stock Market. The evidence suggests that the world peak of the production of Regular Conventional oil, the relatively cheap and easy stuff, peaked in 2005, following earlier declines in North America, the North Sea, Mexico and other places due to natural depletion. This in turn triggered a surge in prices which built to a crescendo during the first six months of this year, reaching almost $150 in July. Annualized, such a price would deliver an astronomical income of $480 to the Kingdom, providing a massive surplus of $430 to be placed on Wall Street. But then the bubble burst ushering in another economic depression which poses a question for the King as to how to place the surplus, with the devaluation of the dollar being a further hazard. Waking in the Palace after a sleepless night, he might conclude that Wall Street no longer provided the safe haven it once was. He might think of European or Far Eastern markets as alternatives only to find that they were facing equal or worse collapses due to the international nature of banking. It would be logical if by lunchtime he had reached the conclusion that his best option was to cut production, leaving more of this precious asset in the ground for his many nieces, nephews and grandchildren, simply because there was nowhere safe to put the proceeds. By dinner, he might further conclude that cutting production would likely support prices even as demand falls in a world of deepening recession, perhaps seeing $100 as a proper minimal level. If he cut production to say 1 Gb/a that would still yield $100 Gb of revenue at that price, which is still perhaps double the minimum needed to run the country. We do not know what the King will decide, and no doubt he will come under pressure from many emissaries, but the above line of reasoning would at least be logical.
http://www.aspo-ireland.org/index.cfm?page=newsletter
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