However dear reader, I hope you followed my advise and bought gold and silver or at least you stopped selling according to some advice from people I believe might be experts in many things but not so much in precious metals. Gold and silver both look just great. There will of course be some corrections on the way up but up we will go, at least that is what I am convinced.
Please be careful with currencies. Although the USD should be going down, we might see a higher USD due to the fact that the world wide debt is hold in USD and as many are forced to cover debt the strength of the USD might hold on for a while. To read more about currencies and especially the opinion of Enrico Orlandini (www.dtanalysis.com, as mentioned already a couple of times, a newsletter service I can warmly recommend) who believes that there is a possibility to see a higher USD, please scroll down to the header “Currencies”.
Well anyway, the best currency to diversify is gold and silver. The only true currencies that are nobodies liability. Therefore dear reader I do believe that one should hold at least 1/3 of the bankable assets in gold an silver. The investment fund I will manage should be ready in approximately 2 weeks. As the fund will mainly invest in physical precious metals, investing in the fund could be an excellent way for you to invest in precious metals. Let me know your interest and I will send you the information as soon as possible.
Before going to the news I’d like to make another comment dear reader. Please be careful with your investments. There will be excellent opportunities on the way. However for the moment being the most important part of investments is not to lose capital at all. Stay alive and to be ready for the opportunities is the game. Therefore I would be really cautious with stocks (DJI can fall to below 4,000 over the next years although on the way down we might see some 20% + rallies). Furthermore I would be cautious with debt. Please hold only top quality debt. Well knowing what top quality means is getting more and more difficult. Regarding debt I would try to stay short although yields are very low. However my guess is that we will see higher yields soon. So being long would not be that good an idea.
Investments in banks, be it preferred shares, stocks or bonds, do not seem to be a good investment alternative to me. I would stay out unless you are an experienced trader and can take advantage of the huge price swings. If you do trade, I would take profits fast and not wait too long taking these profits. Remember, as far as I know so far nobody got poor by taking profits, while the same of course is not true for all those who waited to long. It is OK to stay invested in a bull market but not in a bear market.
Although it hurts to sell with losses, one of the important rules one learns while investing, is that cutting losses by being disciplined and selling rather early when a position is in the red and not to wait too long is certainly very much important, especially in bear markets.
Now to the news:
Yes dear reader it seems that we are at peak of many things. If interested read on:
Peak Oil, Peak middle class, Peak water Peak everything
http://energybulletin.net/node/47969
Too many people too many stuff
http://energybulletin.net/node/47959
Due to the fact that this post is almost in the middle of the week, I will leave out the usual last weeks overview and what’s hot and not. But it seems that the fellow below will be on our way for some time, at least on the equity markets
Recycling
Well dear reader recycling is about making use using part or all of old stuff and change it into new stuff. For example old newspaper into a low cost toilet paper. Looking at the actual government team, I tend to say that it seems such a kind of recycling has occurred. If there are not exactly the same faces there are at least people from the same interest group or ideals. That means that because of the gigantic machine that is government, there cannot be a great deal of difference because of one man. The new President has gathered so many "old School" thinkers about him that there is little, if any, room for imaginative thinkers that could possibly come up with innovative solutions.
Well let’s hope that it is not a kind of the typical recycling and that at lest some good ideas come out of this group
talking about trash cans and to keep up humor following a choke
A retired man moves near a junior high school. He spends the first few weeks of retirement in peace and quiet. However, when a new school year begins, three young boys beat on every trash can they encounter every day on their way home from school.
Finally, the man decides to take action and walks out to meet the boys. He says, "You kids are a lot of fun. I'll give you each a dollar if you'll promise to come around every day and do your thing." The kids continue to do a bang-up job on the trashcans.
After a few days, the man tells the kids, "This recession's really putting a big dent in my income. From now on, I'll only be able to pay you 50 cents to beat on the cans." The noisemakers are displeased, but they accept his offer.
A few days later, the retiree approaches them again. "Look," he says, "I haven't received my Social Security check yet, so I'm not going to be able to pay more than 25 cents. Will that be OK?"
"A freakin' quarter?" the drum leader exclaims. "If you think we're going to waste our time beating these cans around for a quarter, you're nuts. We quit."
Well history shows that not much has changed as you see reading the following thougt
What have we learned over the past 2,063 years?
"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."
-- Cicero , 55 BC
Gold
Dear reader if you hold GLD or intend to buy, please read on:
GLD or its equivalent in silver SLV use sub and sub-subcustodians of which the ETFs have no control at all. That means that the it could very well be that both ETFs in fact hold a lot less of gold or silver as they claim to hold.
The following part I found on the net:
quote
Don’t you think it is about time GLD and all the other popular international gold ETFs told its owners exactly what kind of gold they claim to own?
Can you imagine a situation where a person buys a gold ETF to own “non-gold” but finds out that they in reality own OTC derivatives on gold? That would be an investment in the same type of financial instrument (not gold) that one owns gold bullion to protect against.
The failure to unearth the Madoff scandal becomes incredible when one understands that the returns from the market claimed on the size of the hedge fund were logically impossible.
The exact same reasoning screams bloody murder when applied to the many Gold EFTs in terms of what it is they really own.
This begs one major question: From where did all the gold claimed to be owned by all the gold ETFs come from?
Where did funds such as GLD get their additional 45 tons in the last month?
We certainly can forget about that gold coming from the Comex. 12 deliveries would stand out like a sore thumb.
This concept and record keeping eliminates all exchanges around the globe as the source of bullion delivery in any size to all Gold ETFs.
The physical market is so tight that coin minting has all but closed down compared to what it was one year ago. It is hard to accept that the Gold EFTs can buy what the mints can’t.
A read of the original prospectus removes any thought that the gold is leased, but leaves one to invite probability.
That probability is that the claimed gold can only be OTC derivative long positions. If that is so then the financial reliability of the paper stands on the foundation of the balance sheet of the granting counter party to the OTC derivative. This is true regardless of whether it is a mine or naked speculator.
Don’t you think it is about time the gold ETFs told their owners exactly what kind of gold it is that they claim to own?
Can you imagine a situation where a person buys a gold ETF to own “non-gold” but finds out that they in reality own OTC derivatives on gold? That would be an investment in the same type of financial instrument (not gold) that one owns gold bullion to protect against.
I think you own an ETF of derivatives, not of gold!
If I am correct then there is no clearinghouse guarantee for the OTC derivative to function.
Like so many other surprises of the last two years the Gold ETF shareholder may actually have no gold at all.
A perfect Ponzi scheme would allow you to surrender shares for bullion. You need only think about it.
Unquote
Banks and banksters
Goldman and JP Morgan won't be affected by Obama's salary cap
http://www.bloomberg.com/apps/news?pid=20601087&sid=azVLk.22AkLI&refer=worldwide
Recession/Depression/Doom
Just the Beginning
The intense scrutiny recently paid to my investment strategy in the immediate wake of the financial crisis of the last six months has unfortunately obscured the central element of my larger economic forecast. The standard line has been that although I was able to predict the crash, in the form of the housing collapse and the credit crunch, my expected fallout of a weaker dollar and global decoupling has been proven false. However, this assumes that the crash has fully played out. In reality, all we have heard thus far is the overture.
http://www.europac.net/externalframeset.asp?id=15391
following the excellent comments from sprott
So you think 2008 was bad? Welcome to 2009
http://www.sprott.com/pdf/marketsataglance/01_2009.pdf
"Gordon Brown appeared to acknowledge for the first time today that the world economy was heading for a 1930s-style “depression”.
"Mr Brown stumbled slightly over his words at Commons question time, just a week after admitting that Britain was facing a “deep” recession.
"As the financial gloom deepens, he told the Tory leader David Cameron today: “We should agree, as a world, on a monetary and fiscal stimulus that will take the world out of depression.”
http://www.timesonline.co.uk/tol/news/politics/article5660573.ece
Well dear reader following a very interesting interview found on www.jsmineset.com
INTERVIEW Recession? No, It's a D-process, and It Will Be Long Ray Dalio, Chief Investment Officer, Bridgewater Associates By SANDRA WARD AN INTERVIEW WITH RAY DALIO: This pro sees a long and painful depression. NOBODY WAS BETTER PREPARED FOR THE GLOBAL market crash than clients of Ray Dalio's Bridgewater Associates and subscribers to its Daily Observations. Dalio, the chief investment officer and all-around guiding light of the global money-management company he founded more than 30 years ago, began sounding alarms in Barron's in the spring of 2007 about the dangers of excessive financial leverage. He counts among his clients world governments and central banks, as well as pension funds and endowments. [dalio] Matthew Furman for Barron's "The regulators have to decide how banks will operate. That means they are going to have to nationalize some in some form." -- Ray Dalio No wonder. The Westport, Conn.-based firm, whose analyses of world markets focus on credit and currencies, has produced long-term annual returns, net of fees, averaging 15%. In the turmoil of 2008, Bridgewater's Pure Alpha 1 fund gained 8.7% net of fees and Pure Alpha 2 delivered 9.4%. Here's what's on his mind now. Barron's: I can't think of anyone who was earlier in describing the deleveraging and deflationary process that has been happening around the world. Dalio: Let's call it a "D-process," which is different than a recession, and the only reason that people really don't understand this process is because it happens rarely. Everybody should, at this point, try to understand the depression process by reading about the Great Depression or the Latin American debt crisis or the Japanese experience so that it becomes part of their frame of reference. Most people didn't live through any of those experiences, and what they have gotten used to is the recession dynamic, and so they are quick to presume the recession dynamic. It is very clear to me that we are in a D-process. Why are you hesitant to emphasize either the words depression or deflation? Why call it a D-process? Both of those words have connotations associated with them that can confuse the fact that it is a process that people should try to understand. You can describe a recession as an economic retraction which occurs when the Federal Reserve tightens monetary policy normally to fight inflation. The cycle continues until the economy weakens enough to bring down the inflation rate, at which time the Federal Reserve eases monetary policy and produces an expansion. We can make it more complicated, but that is a basic simple description of what recessions are and what we have experienced through the post-World War II period. What you also need is a comparable understanding of what a D-process is and why it is different. You have made the point that only by understanding the process can you combat the problem. Are you confident that we are doing what's essential to combat deflation and a depression? The D-process is a disease of sorts that is going to run its course. When I first started seeing the D-process and describing it, it was before it actually started to play out this way. But now you can ask yourself, OK, when was the last time bank stocks went down so much? When was the last time the balance sheet of the Federal Reserve, or any central bank, exploded like it has? When was the last time interest rates went to zero, essentially, making monetary policy as we know it ineffective? When was the last time we had deflation? The answers to those questions all point to times other than the U.S. post-World War II experience. This was the dynamic that occurred in Japan in the '90s, that occurred in Latin America in the '80s, and that occurred in the Great Depression in the '30s. Basically what happens is that after a period of time, economies go through a long-term debt cycle -- a dynamic that is self-reinforcing, in which people finance their spending by borrowing and debts rise relative to incomes and, more accurately, debt-service payments rise relative to incomes. At cycle peaks, assets are bought on leverage at high-enough prices that the cash flows they produce aren't adequate to service the debt. The incomes aren't adequate to service the debt. Then begins the reversal process, and that becomes self-reinforcing, too. In the simplest sense, the country reaches the point when it needs a debt restructuring. General Motors is a metaphor for the United States. As goes GM, so goes the nation? The process of bankruptcy or restructuring is necessary to its viability. One way or another, General Motors has to be restructured so that it is a self-sustaining, economically viable entity that people want to lend to again. This has happened in Latin America regularly. Emerging countries default, and then restructure. It is an essential process to get them economically healthy. We will go through a giant debt-restructuring, because we either have to bring debt-service payments down so they are low relative to incomes -- the cash flows that are being produced to service them -- or we are going to have to raise incomes by printing a lot of money. It isn't complicated. It is the same as all bankruptcies, but when it happens pervasively to a country, and the country has a lot of foreign debt denominated in its own currency, it is preferable to print money and devalue. Isn't the process of restructuring under way in households and at corporations? They are cutting costs to service the debt. But they haven't yet done much restructuring. Last year, 2008, was the year of price declines; 2009 and 2010 will be the years of bankruptcies and restructurings. Loans will be written down and assets will be sold. It will be a very difficult time. It is going to surprise a lot of people because many people figure it is bad but still expect, as in all past post-World War II periods, we will come out of it OK. A lot of difficult questions will be asked of policy makers. The government decision-making mechanism is going to be tested, because different people will have different points of view about what should be done. What are you suggesting? An example is the Federal Reserve, which has always been an autonomous institution with the freedom to act as it sees fit. Rep. Barney Frank [a Massachusetts Democrat and chairman of the House Financial Services Committee] is talking about examining the authority of the Federal Reserve, and that raises the specter of the government and Congress trying to run the Federal Reserve. Everybody will be second-guessing everybody else. So where do things stand in the process of restructuring? What the Federal Reserve has done and what the Treasury has done, by and large, is to take an existing debt and say they will own it or lend against it. But they haven't said they are going to write down the debt and cut debt payments each month. There has been little in the way of debt relief yet. Very, very few actual mortgages have been restructured. Very little corporate debt has been restructured. The Federal Reserve, in particular, has done a number of successful things. The Federal Reserve went out and bought or lent against a lot of the debt. That has had the effect of reducing the risk of that debt defaulting, so that is good in a sense. And because the risk of default has gone down, it has forced the interest rate on the debt to go down, and that is good, too. However, the reason it hasn't actually produced increased credit activity is because the debtors are still too indebted and not able to properly service the debt. Only when those debts are actually written down will we get to the point where we will have credit growth. There is a mortgage debt piece that will need to be restructured. There is a giant financial-sector piece -- banks and investment banks and whatever is left of the financial sector -- that will need to be restructured. There is a corporate piece that will need to be restructured, and then there is a commercial-real-estate piece that will need to be restructured. Is a restructuring of the banks a starting point? If you think that restructuring the banks is going to get lending going again and you don't restructure the other pieces -- the mortgage piece, the corporate piece, the real-estate piece -- you are wrong, because they need financially sound entities to lend to, and that won't happen until there are restructurings. On the issue of the banks, ultimately we need banks because to produce credit we have to have banks. A lot of the banks aren't going to have money, and yet we can't just let them go to nothing; we have got to do something. But the future of banking is going to be very, very different. The regulators have to decide how banks will operate. That means they will have to nationalize some in some form, but they are going to also have to decide who they protect: the bondholders or the depositors? Nationalization is the most likely outcome? There will be substantial nationalization of banks. It is going on now and it will continue. But the same question will be asked even after nationalization: What will happen to the pile of bad stuff? Let's say we are going to end up with the good-bank/bad-bank concept. The government is going to put a lot of money in -- say $100 billion -- and going to get all the garbage at a leverage of, let's say, 10 to 1. They will have a trillion dollars, but a trillion dollars' worth of garbage. They still aren't marking it down. Does this give you comfort? Then we have the remaining banks, many of which will be broke. The government will have to recapitalize them. The government will try to seek private money to go in with them, but I don't think they are going to come up with a lot of private money, not nearly the amount needed. To the extent we are going to have nationalized banks, we will still have the question of how those banks behave. Does Congress say what they should do? Does Congress demand they lend to bad borrowers? There is a reason they aren't lending. So whose money is it, and who is protecting that money? The biggest issue is that if you look at the borrowers, you don't want to lend to them. The basic problem is that the borrowers had too much debt when their incomes were higher and their asset values were higher. Now net worths have gone down. [chart] Let me give you an example. Roughly speaking, most of commercial real estate and a good deal of private equity was bought on leverage of 3-to-1. Most of it is down by more than one-third, so therefore they have negative net worth. Most of them couldn't service their debt when the cash flows were up, and now the cash flows are a lot lower. If you shouldn't have lent to them before, how can you possibly lend to them now? I guess I'm thinking of the examples of people and businesses with solid credit records who can't get banks to lend to them. Those examples exist, but they aren't, by and large, the big picture. There are too many nonviable entities. Big pieces of the economy have to become somehow more viable. This isn't primarily about a lack of liquidity. There are certainly elements of that, but this is basically a structural issue. The '30s were very similar to this. By the way, in the bear market from 1929 to the bottom, stocks declined 89%, with six rallies of returns of more than 20% -- and most of them produced renewed optimism. But what happened was that the economy continued to weaken with the debt problem. The Hoover administration had the equivalent of today's TARP [Troubled Asset Relief Program] in the Reconstruction Finance Corp. The stimulus program and tax cuts created more spending, and the budget deficit increased. At the same time, countries around the world encountered a similar kind of thing. England went through then exactly what it is going through now. Just as now, countries couldn't get dollars because of the slowdown in exports, and there was a dollar shortage, as there is now. Efforts were directed at rekindling lending. But they did not rekindle lending. Eventually there were a lot of bankruptcies, which extinguished debt. In the U.S., a Democratic administration replaced a Republican one and there was a major devaluation and reflation that marked the bottom of the Depression in March 1933. Where is the U.S. and the rest of the world going to keep getting money to pay for these stimulus packages? The Federal Reserve is going to have to print money. The deficits will be greater than the savings. So you will see the Federal Reserve buy long-term Treasury bonds, as it did in the Great Depression. We are in a position where that will eventually create a problem for currencies and drive assets to gold. Are you a fan of gold? Yes. Have you always been? No. Gold is horrible sometimes and great other times. But like any other asset class, everybody always should have a piece of it in their portfolio. What about bonds? The conventional wisdom has it that bonds are the most overbought and most dangerous asset class right now. Everything is timing. You print a lot of money, and then you have currency devaluation. The currency devaluation happens before bonds fall. Not much in the way of inflation is produced, because what you are doing actually is negating deflation. So, the first wave of currency depreciation will be very much like England in 1992, with its currency realignment, or the United States during the Great Depression, when they printed money and devalued the dollar a lot. Gold went up a whole lot and the bond market had a hiccup, and then long-term rates continued to decline because people still needed safety and liquidity. While the dollar is bad, it doesn't mean necessarily that the bond market is bad. I can easily imagine at some point I'm going to hate bonds and want to be short bonds, but, for now, a portfolio that is a mixture of Treasury bonds and gold is going to be a very good portfolio, because I imagine gold could go up a whole lot and Treasury bonds won't go down a whole lot, at first. Ideally, creditor countries that don't have dollar-debt problems are the place you want to be, like Japan. The Japanese economy will do horribly, too, but they don't have the problems that we have -- and they have surpluses. They can pull in their assets from abroad, which will support their currency, because they will want to become defensive. Other currencies will decline in relationship to the yen and in relationship to gold. And China? Now we have the delicate China question. That is a complicated, touchy question. The reasons for China to hold dollar-denominated assets no longer exist, for the most part. However, the desire to have a weaker currency is everybody's desire in terms of stimulus. China recognizes that the exchange-rate peg is not as important as it was before, because the idea was to make its goods competitive in the world. Ultimately, they are going to have to go to a domestic-based economy. But they own too much in the way of dollar-denominated assets to get out, and it isn't clear exactly where they would go if they did get out. But they don't have to buy more. They are not going to continue to want to double down. From the U.S. point of view, we want a devaluation. A devaluation gets your pricing in line. When there is a deflationary environment, you want your currency to go down. When you have a lot of foreign debt denominated in your currency, you want to create relief by having your currency go down. All major currency devaluations have triggered stock-market rallies throughout the world; one of the best ways to trigger a stock-market rally is to devalue your currency. But there is a basic structural problem with China. Its per capita income is less than 10% of ours. We have to get our prices in line, and we are not going to do it by cutting our incomes to a level of Chinese incomes. And they are not going to do it by having their per capita incomes coming in line with our per capita incomes. But they have to come closer together. The Chinese currency and assets are too cheap in dollar terms, so a devaluation of the dollar in relation to China's currency is likely, and will be an important step to our reflation and will make investments in China attractive. You mentioned, too, that inflation is not as big a worry for you as it is for some. Could you elaborate? A wave of currency devaluations and strong gold will serve to negate deflationary pressures, bringing inflation to a low, positive number rather than producing unacceptably high inflation -- and that will last for as far as I can see out, roughly about two years. Given this outlook, what is your view on stocks? Buying equities and taking on those risks in late 2009, or more likely 2010, will be a great move because equities will be much cheaper than now. It is going to be a buying opportunity of the century. Thanks, Ray.
When Will the Wall Street Money Center Banks Be Nationalized?
"If we hold the current course at some point the government will place enough capital and hold enough preferred stock in the banks to effectively own them, but passively. The problem with that is the mismanagement and losses will continue to deepen, and the government (public) will own the acid core of thirty years of white collar crime, burning a hole in the fabric of the national economy and monetary system."
http://jessescrossroadscafe.blogspot.com/2009/02/when-w
ill-big-us-moneycenter-banks-be.html
Here's an example what taxpayers and USD holders are at risk of owning
if the Geithner "Bad Bank" plan is implemented: $8 billion of worthless buyout debt from the leveraged buyout of a big chemical company sitting on the
balance sheets of Goldman, BAC, and others:
"The financing includes $8 billion of low-ranking loans still held by the banks that may be worthless, said three people with knowledge of the situation who declined to be identified because the information isn’t public."
http://www.bloomberg.com/apps/news? pid=20601009&sid=awXB9pcCZ2WA&refer=bond
Currencies
well dear reader as mentioned the dollar should be much weaker indeed. Below you find an opinion about a weaker dollar. After this piece of information you can find the opinion from enrico orlandini who seems to be on the right track at least for the moment being,
Big Deficits and a Weaker Dollar by Michael S. Rozeff
Hyperinflation in the U.S. hasn’t happened for quite some time. The last two instances that come to mind are confederate money in the 1860s and the continentals in the 1770s. In both these cases, governments used inflation to finance wars because their tax systems were weak.
A strong tax system (from the government’s perspective) has several aspects. It has a large productive capacity that it can tax without causing production to decline by a great deal. It can enforce tax collections. The required taxes are low compared to the overall government spending.
The U.S. tax system is not weak, but it is weakening. The productive capacity is difficult to evaluate, but it too has probably weakened. The U.S. economy has a large government sector (at least 40 percent) that is relatively inefficient. It also interferes with and distorts the private economy. The federal government has not been able to finance its spending by current taxes in a long time. Instead it has resorted to borrowing (deficit spending) and inflation. The results are a large national debt and a depreciating currency.
U.S. government financing has weakened further in the past year. The government is borrowing very heavily to pay for such actions as the absorption of Fannie Mae and Freddie Mac, bailouts of AIG and large banks, and the rest of the Troubled Assets Relief Program. A short while ago, the government sent out $160 billions of dollars of tax rebates. Meanwhile the Fed has, on its own and with government cooperation, vastly increased credits to the private economy. This has dramatically inflated the monetary base.
The prospects for further tax cuts and higher government spending are bright. In particular, the federal and state governments have made large promises in Social Security and Medicare that, if carried out, mean much higher future government expenditures. These cannot be financed by higher taxes, as they would be too high and crimp production. This spells greater deficit spending, which in turn raises the prospect of higher inflation. In fact, the Fed has already begun to buy more securities in the open market. This "monetizes" debt or creates base money that allows banks to increase lending if they so choose.
http://news.goldseek.com/LewRockwell/1233759630.php
now orlandini
Deflation produces very few winners, but one of them has been the US dollar and I am sure that surprises a lot of people. For years we have heard dire forecasts, mine included, for the dollar but they were all premised on an inflationary scenario. Deflation has some unexpected effects due to the fact that it makes debt more expensive to carry. All the debt in the US and most debt around the world is denominated in US dollars and the servicing of that debt all serves to put upward pressure on the US dollar. Now throw into the mix the fact that almost all industrialized nations are printing huge amounts of fiat currency in order to prop up their own financial networks, and you can see why some would still prefer dollars, at least over the short
run.
Orlandini showing the following chart mentions:
On Friday the March US Dollar Index futures contract closed down .50 at 86.22 and right smack in the middle of a trading range that’s held up for weeks. As you can see in the daily chart of the US Dollar Index, this range. is becoming more and more compressed (smaller) and that tells me that we’ll soon experience a meaningful breakout one way or the other. I am that breakout will be decisive. Should the US dollar break out to the upside, it tells me that we have real problems in Euro land, and especially in the UK.1 You see, the rest of the world bought all of our debt and now there’s no market for it. What’s more, they went into debt building factories to produce even more exports for the US consumer, thinking the party would go on forever. Unfortunately the party is over. On the other hand, if the dollar breaks to the downside, then maybe we’ll finally see that long awaited inflation every one was looking for. My feeling is that the dollar will break to the upside and that will catch many on the wrong side of the trade
source: www.dtanalysis.com
On the stronger dollar…
The following is from the net:
Quote
We have all been scratching our heads since July of last year as to the reason for the explosive dollar rally. It certainly seemed counterintuitive to the multitude of financial implosions with their roots in the U.S.
I think I found the answer:
1. This week's Barron's has an article entitled " Europe's Growing Crisis Puts the Fed at Risk ". It defines the exposure of Europe's commercial banks to the wounded emerging markets at roughly $3.5 trillion and it would seem that a considerable amount invested in these same emerging markets came from U.S. dollar borrowings ( remember how low our rates were under Greenspan ).
2. With the plummeting value of these investments in emerging markets and their withdrawal from these same investments, it caused a dollar demand as loans had to be paid back. This explains the correlation up until now that when our stock market fell, the dollar rose. This is due to the perception that if our stock market went down today, it would cause the overseas markets to follow which would put additional pressure to redeem previous investments made into the emerging markets and then the demand of U.S. dollars to repay the original loan.
3. George Soros summarized this nicely in an FT article of 1/29:
" Eventually I understood that the strength of the dollar was due not to people choosing to hold dollars but to their inability to maintain or roll over their dollar obligations. In a very real sense, the strength of the dollar, like the fever associated with sickness, was a measure of the disruption of the financial system. "
Now that the cat is out of the bag and the clouds lifted, it will be interesting to see how the dollar trades. I hope this contributes to our understanding of the unprecedented volatility and recent moves of the dollar.
Unquote
If I remember correctly the source was www.lemetropolecafe.com
Riots
And the story goes on
Revolt Spreads Across the Globe as "Crisis" Continues to Unfold Unrest rocks the streets of China, France, Russia, Mexico, and elsewhere. And it is spreading… By Nathan Coe, GNN Published: Wednesday February 4th, 2009
“They say that the fires of revolt will spread everywhere, and we see acts like damage to bank branches or state buildings and claims of solidarity with the Greek rioters.”
After numerous European governments expressed fear that the unrest in Greece would spread to neighboring countries and perhaps around the world, the spreading global revolt has taken on another tone: that of confronting the elite for their manipulation of the economic “crisis” (which is really a systemic collapse) in order to consolidate yet even more wealth as the masses of the world suffer the brunt of the former’s greed. The spirit of the Greek revolt has not been forgotten, however, for it is clear whose interests the police serve and protect (as America was recently reminded in Oakland).
As Iceland became the first country to fall due to popular revolt against the economic elite, and then proceeded to elect their first female PM, who is also openly gay, things are heating up around the globe. Recently, over 1,000 protesters assembled illegally to protest the World Economic Forum in Geneva, Switzerland, and while the protests were overwhelmingly peaceful, fear of unrest prompted the police to systematically target and arrest known and identified militants and revolutionaries.
As GNN’s Grady reports, in China “2,000 workers and farmers held wage protests for twelve days outside of Shanghai” in December 2008, “striking workers and security guards clash in a textile factory in Dongguan” on January 15th, and on January 16th, “100 police officers stage a rally in Shenzhen after being sacked from their jobs.” The Times Online also reports that in the southern province of Guangdong, “three jobless men detonated a bomb in a business travellers’ hotel in the commercial city of Foshan to extort money from the management.” In the 12 days of mass demonstrations last December, the Times reports:
…angry workers besieged labour offices and government buildings after dozens of factories closed their doors without paying wages and their owners went back to Hong Kong, Taiwan or South Korea. In southern China, hundreds of workers blocked a highway to protest against pay cuts imposed by managers. At several factories, there were scenes of chaos as police were called to stop creditors breaking in to seize equipment in lieu of debts.
http://www.gnn.tv/articles/3954/Revolt_Spreads_Across_the_Globe_as_Crisis_Continues_to_Unfold
Violent unrest rocks China as crisis hits
The collapse of the export trade has left millions without work and set off a wave of social instability, writes
http://business.timesonline.co.uk/tol/business/economics/article5627687.ece
Dear reader, just to remind you, don’t forget to store some food reserves for at least 3 months. The best advice I can give you is first of all to hold a considerable amount of physical gold (no matter if the price fluctuates or not), food reserves for at least 3 months and reserves of other items such a gasoline etc. (in some places it could even be munition).
FED
The Insolvency of the Fed
http://mises.org/story/3281
anyone surprised, please read on
Regulator Says Bailout Fund Overpaid Banks
Add this to the list of complaints about the government’s Wall Street bailout: When Washington was buying pieces of banks last year, it may have overpaid, by as much as 30 percent.
A regulator overseeing the government’s $700 billion bailout testified Thursday that the Treasury Department paid $254 billion for $176 billion of assets — a shortfall of $76 billion.
“Treasury paid substantially more for the assets it purchased under the TARP than their then-current market value,” said Elizabeth Warren, chairwoman of the Congressional Oversight Panel examining the Troubled Asset Relief Program, or TARP. She cited a valuation study as evidence of the overpayment.
The figures were calculated by studying 10 transactions and then extrapolating their results to all of the TARP purchases in 2008, Ms. Warren said.
“There may be good policy reasons for overpaying,” Ms. Warren said. “But without a clearly delineated reason, we can’t know.”
http://www.nytimes.com/glogin?URI=http://www.nytimes.com/2009/02/06/business/economy/06tarp.html&OQ=_rQ3D2Q26hp&OP=467f2cd3Q2F-k7V-XJKzQ3DJJsQ27-Q27LLQ24-LQ27-Ln-V5zQ5EQ227zz-7KJQ22JQ5Bw-LnsRQ3DQ3B@xsQ5Bj
PIMCO
If you hold PIMCO funds the following article might be of your interest. Last time Bill Gross went public asking the governement to react, it was because the investment in their PIMCO fund was deep in the red. With the government actions miracously the investments turned much better and therefore Gross indirectly was able to avoid big losses. Now Gross is out again, asking the govnerment to do something. Well to me it seems like PIMCO is sitting on substantial bad bets.
"Bill Gross, co-chief investment officer of Pacific Investment Management Co., said the U.S. may slump into a “mini depression” unless policy makers spend trillions of dollars to spur growth.
“This economy needs support from the government, a check from the government in the trillions,” Gross said today in a Bloomberg Television interview from Pimco’s headquarters in Newport Beach, California. “There is a potential catastrophe if the U.S. government continues to focus on billions of dollars.” "
CM: As the largest bond fund manager in the world Gross has a vested interest.
http://www.bloomberg.com/apps/news?pid=email_en&refer=home&sid=aGEL.PMAz22s
Oil
Confusion in the Oil PatchA standard story is making the rounds which goes like this: low prices and lack of investment will impair future oil production capacity. When the global economy rebounds, which could happen as early as 2010, oil prices will shoot up again as demand once again outstrips available supply. The AP’s John Porretto writes don’t get used to cheap oil—
http://www.aspousa.org/index.php/2009/02/confusion-in-the-oil-patch/
an interesting piece of information. Personally I believe that we will see higher oi prices in the coming years however I doubt that the economy rebound starts as early as 2010.
Prepardness
This is a topic that is not for everybodies mental well being. However if you are worried with what you see and hear and believe that more bad news is on the way, you might be interested in some important information in this respect. If this is the case drop me an e mail.
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