Regarding Kondratieff cycle please find some interesting charts on the following link
http://www.thelongwaveanalyst.ca/flash_cycle.html
All readers who did not have the time or chance to read the information about Kondratieff, please check on my last post
As usual let’s begin this musings with the overview what's hot what not
Well dear reader we are approaching Christmas time and some good news would be great in order to sync us in the mood for Christmas. Unfortunately I must say that the news hitting the tape is not getting better and in fact seems to be getting uglier. Sorry about that, I wish I could be the messenger of rather good only.
Before going to the rather negative news first a video that looks at the actual situation in a rather humorous way
Following a few links showing us that the picture has changed more to the negative side.
If you want to avoid reading this kind of negative information, just skip the links and move on to Gold.
A leading Russian political analyst has said the economic turmoil in the United States has confirmed his long-held view that the country is heading for collapse, and will divide into separate parts.
Professor Igor Panarin said in an interview with the respected daily Izvestia published on Monday: "The dollar is not secured by anything. The country's foreign debt has grown like an avalanche, even though in the early 1980s there was no debt. By 1998, when I first made my prediction, it had exceeded $2 trillion. Now it is more than 11 trillion. This is a pyramid that can only collapse."
http://en.rian.ru/world/20081124/118512713.html
Volcker issues dire warning on slump
Paul Volcker, the former chairman of the US Federal Reserve, has warned that the economic slump has begun to metastasise after a shocking collapse in output over the past two months, threatening to overwhelm the incoming Obama administration as it struggles to restore confidence.
http://www.telegraph.co.uk/finance/economics/3474683/Volcker-issues-dire-warning-on-slump.html
America in Free Fall
http://www.alternet.org/workplace/107997/america_in_free_fall/
All US Financials Will be Nationalized in a Year
http://www.cnbc.com/id/27835645
Another levee in the financial markets is crumbling, Crisis Hits Values of Commercial Mortgages
http://www.washingtonpost.com/wp-dyn/content/article/2008/11/20/AR2008112003732.html
http://www.financialsense.com/fsu/editorials/schiff/2008/1201.html
http://www.financialsense.com/fsu/editorials/cherniawski/2008/1121.html
Deflation virus is moving the policy test beyond the 1930s extremes
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3629806/Deflation-virus-is-moving-the-policy-test-beyond-the-1930s-extremes.html
All US Financials Will be Nationalized in a Year
http://www.cnbc.com/id/27835645
Gold
There are no markets, just interventions
Taking the canary out of the coal mine does nothing to improve the quality of the air
Well dear reader the Central banks and its agents, the bullion banks, try everything to keep the Gold price down. In my last post I wrote about the canary bird. Well the sentence above tells us that pushing down the gold price by the bullion banks does not improve the quality of the air or the quality of the broad economy. On the following link you can find an excellent essay about gold, its price manipulation, the USD and why the USD will fail.
http://seekingalpha.com/article/109210-the-manipulation-of-gold-prices
Before going into more detail, I’d like to make a small remark regarding manipulation. I know most people do not believe in manipulation of the markets. However the savvy writers of www.lemetropolecafe.com mentioned already Wednesday last week that the jobless rate must be horrendous as the PPT is pushing down the gold price. Guess what. The jobless numbers came out worse than expected (and even these numbers are miles away from the real world), just as these writers predicted. When I saw the headline that the jobless numbers are lousy I thought for myself that should be positive for gold but knowing that the PPT is active against gold I knew immediately that this piece of bad news, which should be gold bullish, will mean that the PPT will push down the gold price. Yes dear reader what I expected did happen. We saw the same drill as usual.
Bad news means the gold price has to be pushed down before and after the piece of information is coming out. By no means can the PPT allow a build up of some kind of enthusiasm regarding gold. Well to see the positive side, one can say that manipulation works for a certain time but will not work eternally. The longer something is manipulated the stronger the respective correction will be. We see it with the economy that was not let slide into a recession for a long time. The result we start to feel (yes we start to) shows clearly that on one side the manipulation will end at some point and shows clearly as well that the following correction will be a lot worse than without manipulation. The same will happen to Gold and Silver and my guess is that we are close to that moment. Stay tuned.
Well dear reader it makes a lot of sense to see these horrendous statistics and see the USD going up while precious metals go down. It makes sense only when you know how the PPT works. Incredible indeed.
Following some more information about gold
First I'd like to let you know what Alf Field, using Elliott Wave theory is predicting regarding Gold price
The current situation:
The chart below depicts the Comex Gold price on a weekly basis. In February 2006, in Update IV, the $630 target was increased to $768 as a result of intervening market action. A couple of months later the gold price exceeded $630 and moved to $733 in May 2006. From that point a 23% correction to $563 occurred.
Confusion reigned because a relatively minor correction had been anticipated, to be followed by a rise to $768. Thereafter the long awaited 25% to 33% correction was scheduled to occur. Instead, the decline measured 23% and the obvious conclusion was that this was the long awaited 25% to 33% correction, albeit slightly stunted. Quite possibly I was overly influenced by my previously unpublished rough target of $750 followed by a decline to $500. The actual outcome of a peak of $733 and a correction to $563 was remarkably close to my rough estimate and seemed to adequately fit the requirement for the end of Major ONE and the corrective wave Major TWO. In coming to this conclusion I glossed over the fact that the correction to $563 was an obvious triangle, and triangles are almost always 4th waves, yet I was calling it a 2nd wave, Major TWO. I also glossed over the fact that the correction was below the 25% to 33% magnitude required.
I mentioned previously that the early corrections were 4%, 8% and 16% at increasing orders of magnitude. If one were to be pedantic, one would say that the next level of correction should be 32%. Looking at the chart below, the correction from $1015 to $699 is 31%! It sticks out like a sore thumb. Surely this is exactly the 32% correction that we should have been anticipating for Major TWO?
Assuming that the $699 low on 23 October 2008 turns out to be the actual low point of the correction, and that remains to be proven, then we can conclude that we have seen the low point for Major TWO. That will allow us to update my original “back of the envelope” template to much higher levels, as follows:
Major ONE up from $256 to $1,015 (actually 4 times the $255 low);
Major TWO down from $1015 to $699, say $700 (a decline of 31%);
Major THREE up from $700 to $3,500 (a Fibonacci 5 times the $500 low);
Major FOUR down from $3,500 to $2,500 (a 29% decline);
Major FIVE up from $2,500 to $10,000 (also a 4 fold increase, same as ONE)
Once again, you can pick your number for the gain in FIVE and multiply it by $2,500. The numbers become astronomical and can really only be possible in a runaway inflationary environment, something which many thinking people are suggesting has become a possibility as a result of the actions taken during the current crisis.
Concentrating on the $3,500 target for Major THREE, which is a five fold increase from the low point of about $700, there is a case advanced in “Crisis Cogitations” for a five fold increase in money and prices in order to arrive at a “Less Hard” economic landing. In the USA, total debt recently exceeded $50 trillion and this is unsustainable given an economy with a GDP of only $14 trillion. The suggestion is that the debt level will reduce through bankruptcies to say $35 trillion while the new money created to save the situation will push up the nominal GDP to $70 trillion. A $35 trillion debt level is manageable with a GDP of $70 trillion.
It requires a five fold increase in prices to achieve the above result. Gold has retained its purchasing power over the centuries and will no doubt continue to do so in the current environment. Consequently gold will almost certainly increase five fold (or more) if the level of prices in the USA increases five fold.
In “Crisis Cogitations” it is acknowledged that the current credit/debt deflation could get out of hand and result in a serious deflationary depression. There is debate as to how gold will react in a deflationary environment, but the fact is that in a serious depression bankruptcies will be rife and price levels will decline. This may result in cash and Government bonds performing better than gold, but this is not certain. Gold cannot go bankrupt and is thus an asset that people can hold with confidence in a deflationary depression. It is possible that demand for a “safe haven” investment may be large enough to cause the metal to perform better than cash or Government Bonds.
The odds, however, strongly favour an inflationary outcome. Given a strong will and the ability to create any amount of new money via the electronic money machine, it seems a foregone conclusion that runaway inflation will be the end result. If Mugabe could do it in Zimbabwe, there seems little doubt that Ben Bernanke and his associates in other countries will have no trouble in doing it too.
Why quit writing these reports? I have noticed from the emails that I receive that many people are using these reports to guide their trading activities in gold. I have had no objection to this in the past, but feel that it would be foolish to trade gold in the circumstances of the Big Kahuna crisis that we are living though at the moment. It has become a question of individual financial survival in an environment where things are happening more rapidly and with increasing violence. I feel very strongly that it is time to quietly hold onto one’s gold insurance and not attempt to trade it. I do not wish to provide interim levels that may cause people to be encouraged to trade their gold to skim a few extra fiat dollars or other currencies, but lose their gold as a result.
So it is Good Bye, Good Luck and God Bless,
Alf Field
25 November 2008.
Gold demand has exploded. Around the world, customers have been queuing up to strip coin shops shelves bare. Mints have been running 24/7 and still have been forced to ration coin shipments to their dealers.
“Now the World Gold Council has confirmed the trend with hard numbers for the third quarter of this year. In a page-and-a-half press release summarizing 3Q 2008 activity, the WGC had to use the word record10 times. Some highlights:
Dollar demand for gold in Q3 was a record US$32 billion, 45% higher than the previous record, set in 2Q 2008
Identifiable investment demand, which incorporates demand for gold through exchange-traded funds (ETFs), bars and coins, rose to $10.7 billion (12.3 million ounces), double year-earlier levels
Retail investment demand rose 121%, to 7.5 million ounces, with strong bar and coin buying in the Swiss, German and U.S. markets. Europe as a whole saw an all-time record 1.64 million ounces of bar and coin buying. France became a net investor in gold for the first time since the early 1980s
Gold ETFs posted a record quarterly inflow of 4.8 million ounces in Q3. After the collapse of Lehman Bros. in late September, ETF inflows shot higher by an unprecedented 3.6 million ounces in only five days
Demand for gold jewelry hit a record $18 billion. Leading the way was India, which witnessed a rise of 65% in dollar value (1.3 million ounces) compared with 3Q 2007. The Middle East, Indonesia and China all experienced increases of more than 40% in value or 10% in weight, year over year
At the same time that demand is setting records, supply has been unable to keep pace, falling 9.7% from year-earlier levels. The drop was largely due to inaction on the part of central banks, which have increasingly shut their vault doors.
“Heavy demand, declining supply… small wonder that gold prices have remained near record highs in most of the world’s currencies, that dealers have been marking up coins by 10% or even 15% (when they can get them) and that 1-ounce coins still fetch bids close to $1,000 on eBay.
“When will the spot price in U.S. dollars, which is set by the futures market, catch up? No one knows. But it will.”
Well dear reader Gold is in “backwardation”
(http://en.wikipedia.org/wiki/Backwardation)
Dr. Antal E. Fekete has the following to say about backwardation of gold
Gold going to permanent backwardation means that gold is no longer for sale at any price, whether it is quoted in dollars, yens, euros, or Swiss francs. The situation is exactly the same as it has been for years: gold is not for sale at any price quoted in Zimbabwe currency, however high the quote is. To put it differently, all offers to sell gold are being withdrawn, whether it concerns newly mined gold, scrap gold, bullion gold or coined gold. I dubbed this event that has cast its long shadow forward for many a year, the last contango in Washington ? contango being the name for the condition opposite to backwardation (namely, that of a positive basis), and Washington being the city where the Paper-mill of the Potomac, the Federal Reserve Board, is located. This is a tongue-in-cheek way of saying that the jig in Washington is up. The music has stopped on the players of ‘musical chairs’. Those who have no gold in hand are out of luck. They won’t get it now through the regular channels. If they want it, they will have to go to the black market.
Furthermore he comments
In the commodity futures markets the terminus technicus for a positive basis is contango; that for a negative one, backwardation. Contango implies the existence of a healthy supply of the commodity in the warehouses available for immediate delivery, while backwardation implies shortages and conjures up the scraping of the bottom of the barrel. The basis is limited on the upside by the carrying charges; but there is no limit on the downside as it can fall to any negative value (meaning that the cash price may exceed the futures price by any amount, however large).
To read more about this important topic, please go to the following link
http://www.professorfekete.com/articles/AEFRedAlert.pdf
Well dear reader Mike Shedlock opines that backwardation is nothing unusual in the future markets. However he admits that it is rare in gold. He says:
Nothing Special About Backwardations
A friend who has a seat on the NYMEX had this to say:
I have seen countless commodities go into backwardation for numerous reasons, the most frequent being a radical temporary divergence between immediate demand and overall demand. I have seen backwardations that have lasted years. The article is based on the assumption that a backwardation will necessarily lead to a breakdown of the delivery mechanism.
There is nothing special about backwardations. Period. OK they are rare in gold. So what?
Well dear reader in fact it does not matter who is right or not. Important is that it is rare and that shows that something is not OK
More about gold:
The following part is copied from www.lemetropolecafe.com
quote
Since July '07 there has been about $200 billion worth of Gold mined while who knows how many Dollars have been printed and created. We know of $8 trillion created by the government, we know of roughly $500 trillion worth of derivatives created since last July but we don't know how many Dollars have been destroyed. This is the rub in a nutshell. Dollars get destroyed through bankruptcies and failures and they can be created with the stroke of a pen or computer keys at will. Gold can never be destroyed.
To have a stable economy, you must also have a stable currency as the base. Dollars can and are created by the trillions per year and lately have been destroyed by the tens or hundreds of trillions. This phenomena cannot happen with Gold supply nor can destruction of current above ground supply ever occur.
So forging ahead, if you believe that the debt orgy/credit crunch will continue to reek havoc in the financial markets then you are probably continually searching for the "safe haven" where you will lose the least or actually gain in purchasing power. If you chose Dollars or physical Gold, so far you have been correct as "cash" has been the best performer during this deflation as one should expect. However, you still have a choice to make as to which "cash" you want to own in the future. You can choose Dollars but the risks are numerous and obvious. 1. The government can and will create as many Dollars as are necessary to prevent a financial collapse of the system. [I'm not making this up, just listen to Paulson and Bernanke]. 2. The issuer of Dollars [US Treasury] can and I believe will go bankrupt and thus rendering these "Dollars" worth less [worthless]. 3. The institution holding your Dollar credits can go bust and if it is not FDIC insured, you lose. Or you can choose Gold which has as I see it only one negative, THE GOVERNMENT DOESN"T WANT YOU TO OWN IT! [it is generally a good financial choice to fade the government] Gold competes as money vs. the Dollar so it is "discouraged".
Comparing the two, Gold cannot possibly have a supply growth rate of 15-20% as Dollars do. It cannot go bankrupt even if every central bank on earth goes belly up since the metal has no issuer nor sponsor. Your institution [preferably outside of the states] can go bankrupt but your physical gold held segregated doesn't go poof with the banks balance sheet. There are more pros and cons but I think these are the most important during the current environment.
unquote
The following news is already a bit more than one week old. After the gold price increased to above the 800 level, we are back below 800. However the move at the end of November was special.
GoldMoney.com's veteran James Turk commented: "It is rare for gold to achieve such a huge one-day gain. In fact, I checked my records for the past twenty years and found only one other ... the other occurrence was on Sept. 17, 2008, barely two months ago. That rally also took gold back above $800."
http://www.tulving.com/New%20Pages/buying_bullion_coins.html
Well dear reader following a chart from James Turk's (www.goldmoney.com) presentation from the Gold Fair in Munich some 4 weeks ago. The chart shows when gold is cheap versus the DJI. I am convinced that we will see 1 ounce of Gold equal to 1 DJI
Unemployment rate
November Jobs Plummet 732,000 Net of Revisions, Down 873,000 Net of Concurrent Seasonal Factor Bias
The King Report sees it the following way
The November Employment Report should be ugly but one must consider the propensity of the BLS to create an absurd number of jobs via its hokey Net Business Birth/Death Model and seasonal adjustments.
The Birth/Death Model is supposed to account for small business jobs. However, the BLS has used this to create fictitious jobs and inflate NFP data. During 2008, a year of recession, the BLS fabricated more small business jobs than in 2007 – with many jobs in finance and construction!
Bill Clinton ‘defined away’ people that are considered ‘long-time unemployed’. If these jobless people are added to the U6 it would be an estimated 13% to 13.5%.
Ergo if U6 unemployment jumps above 12% for November, the ‘real’ unemployment rate in the US could be near 15%!
Following a chart from www.shadowstats.com showing the real picture
Economy
Well dear reader the FED is injecting money into the economy like crazy. Thanks god this can now be done on the computer and there is no need for the paper anymore. If there would still be the need to print all this paper to increase the money supply, the US would already be short of trees.
The Fed announced an $800 billion dollar program to purchase all kinds of asset-backed debt from banks. This program is being sold thru the media to the public as a way to stimulate consumer finance. But the last thing the consumer in the U.S. needs is the ability to take on more credit card and mortgage debt. If you have someone with a severe obesity problem, the last thing you would do is give them a high dollar gift card to McDonald's.
Whereas Volcker pursued "Monetarism," to defeat double-digit inflation, Fed chief Benjamin Bernanke is signaling a diametrically opposite strategy, - "Quantitative Easing," (QE) to head-off deflation in the US-economy, which if left unchecked, can generate a downward spiral of corporate earnings, production cuts, mass layoffs, and greater difficulty for companies to pay-off debts. Yields on speculative-grade US corporate junk bonds surpassed 20% in November on speculation the recession will leave a glut of companies unable to meet their debt payments.
http://www.safehaven.com/article-11996.htm
Quoted from Dr Marc Faber
"When Mr. Bernanke became Fed chairman and when he talked aboutdropping dollar bills from helicopters onto the US and taking"extraordinary" monetary measures in order to support asset markets, people did not take him too seriously. But as it turns out, he has done exactly what he wrote about and what he repeatedly stated in speeches.
He is the John Law(http://en.wikipedia.org/wiki/John_Law_(economist)) of the 21st century - a money printer and market manipulator par excellence. A friend of ours recently sent us the following comment from Dr. G. Gono, chairman of the Reserve Bank of Zimbabwe (no hoax):
"As Monetary Authorities, we have been humbled and have taken heart in the realization that some leading Central Banks, including those in the USA and the UK, are now not just talking of, but also actually implementing flexible and pragmatic central bank support programmes where these are deemed necessary in their National interests.
...That is precisely the path that we began over 4 years ago in pursuit of our national interest and we have not wavered on that critical path despite the untold misunderstanding, vilification, and demonization we have endured from across the political divide.
...Here in Zimbabwe we had our near-bank failures a few years ago and we responded by providing the affected Banks with the Troubled Bank Fund (TBF) for which we were heavily criticized even by some multilateral institutions who today are silent when the Central Banks of UK and USA are going the same way and doing the same thing under very similar circumstances thereby continuing the unfortunate hypocrisy that what's good for goose is not good for the gander.
...As Monetary Authorities, we commend those of our peers, the world over, who have now seen the light on the need for the adoption of flexible and practical interventions and support to key sectors of the economy when faced with unusual circumstances."
Quantitative easing, the way to hyperinflation
Well dear reader are we heading towards hyperinflation or into deflation/depression like in the 30ies? Quantitative easing could very well end with hyperinflation. However that does not mean that we cannot go through a deflation phase first. For the moment being it seems more like deflation but it would not surprise me at all to see a hyperinflation situation starting in a couple of months.
http://en.wikipedia.org/wiki/Quantitative_easing
http://www.guardian.co.uk/business/2008/oct/14/businessglossary
Insurance companies
Well dear reader, we know already what can happen to insurance companies having AIG as a prime example. It seems like the companies that so far did not have to face major problems might have to face them soon. The trend as per following article is not healthy and sounds like future trouble to me.
Insurers cash in on deflation fears
Firms are using the volatility of the stock markets to push poor products
Investors are being lured into discredited products by insurers keen to capitalise on tumbling interest rates and volatile stock markets.
Legal & General (L&G) has reported a 186% surge in sales of with-profits bonds in the first nine months of the year, while Prudential saw a 174% jump in business. Norwich Union has sold bonds worth £1 billion in the first nine months alone.
http://www.timesonline.co.uk/tol/money/investment/article5212000.ece
Treasury and FED
Only a week after Treasury Secretary Henry Paulson Jr. said that the government bailouts had stabilized the most important financial institutions, plunging stock prices forced it to step in again, both to make another direct investment and to guarantee that losses would be contained from $306 billion in possibly toxic assets on Citigroup's balance sheet."
Meet Timothy Geithner
AP, Chicago Tribune
Published November 24 2008
Age: 47
Position: Treasury secretary
Education: Earned bachelor's degree in government and Asian studies, Dartmouth College. Earned master's in international economics and East Asian studies, Johns Hopkins School of Advanced Int'l Studies.
Experience
» Kissinger Associates Inc., 1985 to 1988
» Treasury Department, 1988-2001, including undersecretary of treasury for international affairs
» Director of the policy development and review department, International Monetary Fund, 2001-03
» Chief executive officer, Federal Reserve Bank of New York, 2003-present
Well dear reader the goal of this blog is to give you some information that might not hit the main news tapes. Giving out a political opinion is certainly not something planned. However in the case that some political events might affect the markets, I will from time to time allow me to make specific comments. Well what the market has expected with Obama being elected is a change. Do you see any change yet? Well of course he has not yet started and we have to wait what he is going to do. However seeing all the nominations of important key people Obama has not shown that any real changes are in the cards. The same people as before. So what will change? What can change when you see the same people that in some way were responsible for the actual mess being around again? Well although I do believe that changes are possible and certainly urgently needed, I do know that this will take a lot of time and will most probably not happen soon. Let's keep up hope.
Not much is likely to change, as Paulson (from Goldman Sachs) is replaced by Geithner (from USFed). The loyalty of both men is clearly to the Wall Street titans, and the aristocracy. They are both knee deep in responsibility for the current meltdown failures. Too many bailouts, too many rescues, too much required stimulus, not any visible sign of anything working. No sign of ANY remedy after 16 months of futility. Economic disintegration ahead!
The US Federal Reserve has accomplished a bizarre feat. They have made short-term lending virtually free, but offer a yield over 3% on long-term bonds. So US banks are deeply engaged in a permitted carry trade. US banks borrow short and lend to the USGovt long, and thus exploit the steep USTreasury yield curve. This perhaps explains who is buying the long term treasuries. If banks can buy them with funds given to them by Paulson realizing 3% profit while loaning why not. The funds from Paulson cost them nothing
Well dear reader in October Treasury Secretary Paulson arm-twisted from congress a staggering $700 billion. According to a November 24 Bloomberg report, the Paulson/Bernanke team is now prepared to pay $8,5 trillion to rescue the financial system. But how are they going to pay it? As far as I know, Congress has not raised its debt ceiling at all. Well it seems that the approval of the Congress is not necessary anymore and that the Treasury Secretary and Fed Chairman feel they can do whatever they like to do. Can this debt ever be repaid? I seriously doubt it.
The new sum presents half the value of everything produced in the nation last year (using the official GDP numbers, which means it would be a lot more if one uses the real GDP number according to www.shadowstats.com).
That as such is already shocking but what makes it worse is that the system will not be rescued with this amount. There is basically no bank (at least no important institution) left without having been bailed out with taxpayers money. But, and that is important, more money will be needed. AIG is a prime example to show that a one time infusion is in most, if not all cases not sufficient at all. The financial institutions still hold enormous amounts of derivatives. Please keep in mind that only a small fraction of the derivative market (CDS) has triggered already an almost break down of the system. I dare to imagine what happens when the rest blows up. Still 80% of the derivatives are basically speculative without any commercial underlying such as a coffee or sugar future or any similar one. According to the Comptroller of the Currency, U.S. commercial banks now carry over $180 trillion in derivatives on their books (my guess is that the off balance sheet derivatives packed into SIV see http://en.wikipedia.org/wiki/Structured_investment_vehicle are not included in this figure which means that the risk that is in the books or will return to the books of the US Banks probably is considerably higher).
Quintillion
Found on the net:
Quote
Attempting to comprehend amounts in TRILLIONS, QUADRILLIONS and soon a QUINTILLION, for global debt/derivatives is virtually an impossible task. The human mind can't comprehend these amounts. It is very similar to scientists attempting to comprehend distances in the Universe. As a result, scientists coined the term Light Year, that being SIX TRILLION MILES.
I propose the new financial term Light Tear, as we will all be crying over this very soon. One Light Tear is equal to SIX TRILLION DOLLARS, which is less than the Federal Debt, the eventual total of the Bailout Package, etc.
Example: JP Morgan Chase is the largest holder of derivatives with a reported NINETY TRILLION, which is FIFTEEN LIGHT TEARS
Example: Total global derivatives is reported over ONE QUADRILLION, which is ONE THOUSAND LIGHT TEARS
Are these staggering amounts starting to become understandable?
For additional information, just ask my friend, Buck Light Tear, who will simply tell you, "To Infinity and Beyond"
Unquote
Citi and PPT
The Real Truth behind the Citigroup Bank Nationalization
On Friday November 21 the world came within a hair’s breadth of the most colossal financial collapse in world history according to bankers on the inside of events with whom we have contact. The trigger was the bank which only two years ago was America’s largest, Citigroup. The size of the US Government de facto nationalization of the $2 trillion banking institution is an indication of shocks yet to come in other major US and perhaps European banks thought to be ‘too big to fail.’
http://www.engdahl.oilgeopolitics.net/Financial_Tsunami/Citigroup_Abyss/citigroup_abyss.html
Saving Citi May Create More Fear
One bailout was not enough for Citigroup. And it may not be enough for other big banks.
http://www.nytimes.com/2008/11/25/business/25citi.html?_r=1&em
FT: Regulators considered more aggressive action, even discussing plans to buy common shares of Citi in the open market to "squeeze" short sellers, who bet on the company’s decline, participants in the talks say. The proposal – which recalls strategies employed by central bankers in the past – was rejected.
http://www.ft.com/cms/s/0/a4023fb2-ba5a-11dd-aecd-0000779fd18c.html
The IHT notes that though the US bailed out Citigroup it has kept Citigroup’s problems, AKA crappy paper, under a cloak of secrecy. U.S. brings support, but not clarity, to
Citibank
The fact that it was necessary to guarantee so many assets - about a sixth of the $2 trillion in assets that Citigroup reported at the end of September - was another indication of both the complexity and the opacity of many of the securities that were created by financial engineers in the great wave of innovation. That opacity evidently contributed to the delay in announcing the transaction, which did not come until just before midnight, New York time, on Sunday…
And get this: The assets in question - described by the government as "loans and securities backed by residential real estate and commercial real estate, and their associated hedges" - must be valued at current market value before the guarantee kicks in, but the government and the bank have yet to agree on those values.
http://www.iht.com/articles/2008/11/24/business/norris.php
Is Britain going bankrupt
http://blogs.telegraph.co.uk/ambrose_evans-pritchard/blog/2008/11/24/is_britain_going_bankrupt
Iceland the unfortunate example of what can happen somewhere else
Dear reader, sorry for repeating myself but as the number of the readers of my musings is increasing I tend to repeat a few things from time to time. For the new readers; Iceland is an example of what can happen in other countries too. Iceland is basically a US but in a much smaller version. Iceland, like the US, depended heavily on the financial sector and did not have any important manufacturing sector at all. Iceland like the US depended heavily on funds from others etc. There are many similarities indeed. That is the reason why Iceland to me is an example of what can happen to many others.
A near-riot and parliament besieged: Iceland boiling mad at credit crunch
http://news.scotsman.com/world/A-nearriot-and--parliament.4722970.jp
Fixed Income
Long Term Treasury Yields: The Next Bubble?
http://www.safehaven.com/article-12004.htm
AUD and CAD bonds look interesting. Currency should do well, a conservative investment
Treasury bonds
Safe-haven buying pushes yields to 50-year lows
* Benchmark yields reach 50-year lows in safe-haven buying
* Global equity rout adds to safe-haven bid for bonds
* Investors question how much further yields can fall
NEW YORK, Dec 1 (Reuters) - U.S. Treasury debt prices rose on Monday in safe-haven buying that took benchmark yields to the lowest in 50 years as investors continue to fret over the skidding world economy.
U.S. stock futures fell on Monday morning, after a global equity rout that hit stocks in Asia and Europe, spurring investors to once again turn to lower-risk government debt.
"The bond market is just off record highs given concerns that the recession could be deep and long lasting and ongoing safe haven demand for Treasuries," said Action Economics LLC said in a note to clients…
Currencies
Well dear reader it seems that the end of the Dollar rally is close. We have seen a considerable rally of the dollar over the past months. The reasons for the dollar strength are given in previous musings. Well there was the question for how long this rally will last. It looks like we are at the end or close to the end. Why do I believe so? Well on one side the dollar up trend stopped and the move over the past days has been sidewise and out of its uptrend. Secondly there seems to be a bullishness that is too high and this normally is a sign of a change of the trend. Well and finally, with all the money printed and with the huge increases in debt a devaluation is just a question of time.
The dollar rising in the face of the creation of so many dollars simply seems impossible to sustain.
The dollar rising in the face of imploding financial and general business entities, being immensely bigger than the Euroland problems, is impossible to sustain.
The dollar rising in the face of Quantitative Easing cannot be sustained.
As you clearly recognize, gold is a currency, has always been a currency and will continue to be a currency regardless of today’s effort to the contrary.
UN team warns of hard landing for dollar
By Harvey Morris in New York
December 1 2008 08:48
The current strength of the dollar is temporary and the US currency risks a hard landing in 2009, according to a team of United Nations economists who foresaw a year ago that a US downturn would bring the global economy to a near standstill.
In their annual report on the world economy published on Monday, the economists said the dollar’s sharp rebound this autumn had been driven mainly by a flight to the safety of the international reserve currency as the financial crisis spread beyond the US.
The overall trend remained a downward one, however, reflecting perceptions that the US debt position was approaching unsustainable levels. An accelerated fall of the dollar could bring new turmoil to financial markets.
“Investors might renew their flight to safety, though this time away from dollar-denominated assets, thereby forcing the US economy into a hard landing and pulling the global economy into a deeper recession,” the report said.
Publication of the annual survey by the UN’s Department of Economic and Social Affairs, its trade organisation Unctad and UN regional bodies, was brought forward by a month in the light of the financial crisis. It was launched in Doha to coincide with the UN-sponsored development financing conference in the Qatari capital.
The UN team said that, as the financial crisis spread beyond the US, there had been a massive shift of global financial assets into US Treasury bills, driving their yields almost to zero and pushing the dollar sharply higher. At the same time, however, the US’s external debt had risen to new heights that could provoke a dollar collapse.
The report recommends reform of the international reserve system away from almost exclusive reliance on the dollar and towards a globally backed multi-currency system.
Rob Vos, a Dutch economist who heads the UN’s policy and analysis division and who is responsible for the annual economic review, said the global economic pain could be eased if governments co-ordinated a spate of stimulus packages that were already under way.
“There has been a sea change in attitudes in favour of intervention and concerted action,” he told the Financial Times. He welcomed statements from US president-elect Barack Obama’s transition team in support of spending on infrastructure.
http://www.ft.com/cms/s/0/12eab3b4-bf06-11dd-ae63-0000779fd18c.html?nclick_check=1
Equity
maybe he’s going to correct the entire bull market run that began in 1982. If so, you can expect the Dow to sink down to about 3,000 (adjusting the ’82 level to inflation).
Well dear reader as mentioned a couple of times (sorry for sounding like a broken record) I do not believe that we have seen the actual bear market in equities end. As long as we do not see the typical behavior of capitulation we are not yet at the end of the Bear. Therefore we will see much lower prices ahead. Once we get to the situation where practically everybody tells me that they will never in their live buy shares again, I will pay attention. Once that happens we should be at or close to the bear market low. To me it looks like we are still far away from that situation. Well as with all primary trends, there are secondary trends too. That means that a secondary bull trend within the bear market is not only a possibility but practically a given. The question is when this secondary bull will start and where the bull will end. I still believe that we could see a rally that could bring us back above the 10,000 DJI and might go on until second quarter next year. However before having the rally we could test the previous lows. As a conservative investor I therefore would wait with new investments until the picture is clearer. Not being investment could only lead to a loss of opportunity while being invested could lead into a real loss. What would I do with existing positions that possibly are in deep red? Well if I would hold such investments (for your information, with the exception of really small holdings in 2 mining and one junior oil company I do not hold any equities as I was negative for the equity market for some time) I would wait and would certainly sell or at least reduce positions once we should get close to the end of the interim rally.
That could mean DJI 3,000 and Gold 3,000
The oracle or the puppet of the money power
One of Berkshire’s latest buys, Goldman Sachs, hasn't been going very well so far. That 10% coupon for this year is long gone, and Goldman shares have fallen below $50… $3 lower then their IPO price in 1999.
Berkshire Hathaway A shares dropped 12% Wednesday a week ago. Their worst trading day in at least 23 years. The company reported a 77% decline in third-quarter profits year over year, and has been trading down for the last nine days in a row.
Well the investment policy of Buffet was certainly great during the 80ies and 90ies, in an equity bull market. Buffet was lucky that Greenspan prolonged the party with his low interest policy. However the party stopped. Holding equities in a primary bear market will not be a good idea. As I believe that we are in a primary bear market I do not see how Buffets stile will be successful for the coming years.
Food
Now, with the suddenness of a hailstorm flattening a field, hard times are back on the American farmstead. The price paid for crops is dropping much faster than the cost of growing them.
The government reported this week that the cost of goods and services nationwide fell by a record amount in October as frantic businesses tried to lure customers. While lower prices are good for consumers in the short run, a prolonged stretch of deflation would wreak havoc as companies struggled to stay afloat.
In this lonesome stretch near the Texas border, farmers are getting an early taste of a deflationary world. They have finished planting next year’s winter wheat, turning the fields a brilliant emerald green. But it cost about $6 a bushel in fuel, seed and fertilizer to put the crop in. That is $1 more than they could sell it for today, and never mind other expenses like renting land.
This looming loss sharpens their regret that they did not unload more of this year’s crop back when they harvested it in May. They knew the boom would end, but not so soon.
The Famine Of 2009
Last week I received a very concerned call from South Dakota farmer and agronomist Bryan Lutter. "Neal, we're out of propane!" I figured this was personal distress – he and his family farm over three square miles of land and I know this has been a tough year for many people. He promptly corrected my misconception when I tried to console him. "No, everybody is out, all three grain elevators, we can't get fuel for the bins, and we're coming in real wet this year."
http://www.dailykos.com/storyonly/2008/11/27/11143/168/114/667032
Tessa Boase, Telegraph (UK)
As fears grow about the economic battleground of food supplies, local heroes are pitching in to save the day.
---
Here is some disturbing news. According to Patrick Holden, director of the Soil Association, next year is tipped to be "peak oil" year. This means that from 2009, fossil fuel extraction will start tailing off globally – most rapidly in western Europe. Pessimists say the situation will be acute by 2020.
It takes 10 calories of fossil fuel to produce one calorie of food in Western culture. "Anyone can see that this is not sustainable," says Holden, who predicts that the big issue for coming years will be "food security".
We have a food system that keeps nothing in stock and everything constantly on the move in trucks, responding to computerised signals when supplies are running low. It is known as the "just in time" system. A lorry drivers' strike, a volatile situation in the Middle East, an oil blockade – all or any of these could sabotage the process that puts food on our shelves.
"We all hope there won't be a food emergency," says Holden, "but many are now thinking not 'if', but 'when'. If we're prepared, we will survive."
Now for some heart-warming news. Over the past few years a revolution of almost silly simplicity has been taking place in the fallow pockets and small farms of Britain. It is a bottom-up movement, led by individual citizens acting from a potent combination of enlightenment and self-interest, and it could make us resilient to a future without oil.
It started quietly, as underground movements do.
http://www.telegraph.co.uk/earth/agriculture/farming/3484996/Were-All-Farmers-Now.html
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