Archive - Mar 24, 2011

In case you wondered where the title for this piece came from, it was actually the message that popped out my fortune cookie during a meal on Monday night. It just summed up so many things for me. It summarized why our culture is so damaged. At the core of the malignancy killing the nation is the fact that we possess the world’s reserve currency that can be created at will out of thin air and forced upon goods producing nations (whether manufacturing or resource goods). This means we do not need to produce to consume, which hollows out the entire core of the economy over time and has made us the generally lazy and decadent society we are today. I mean take for example the C announcement recently of a reverse 1 for 10 stock split. I haven’t heard such an embarrassing press release since reading about how U.S. taxpayers are going to make money from the bailouts. So for the last year all I heard on propaganda channel CNBC was how once C’s shares got above $5 it would attract a whole new class of investors and the shares would soar. Well the stock wasn’t able to hold above $5 so look what happened. Magic, they are just going to make the stock trade at $45 with this scheme. Bankers can’t lose, didn’t you get the memo? Oh and they are paying a whole penny a share in dividends. You have got to be kidding me guys. Pathetic.

Way back in August 2006, near the top of the housing bubble, I suggested a two-part scenario for the housing bust: it would take eight more years to play out, and the declines would occur in sharp downlegs following a phase-shift model. A few months later, literally at the top of the housing bubble in early 2007, I suggested that a mere 4% of homeowners defaulting could trigger a collapse of the entire U.S. housing market. That is pretty much exactly what happened, for when the 4% who couldn't pay their subprime mortgages folded, they took down an exquisitely corrupt and vulnerable banking sector and the FIRE (finance, insurance, real estate) economy which had come to depend on it.

With all due respect to that Nassim Taleb dude who popularized the term “Black Swasn”, Black Swan events are both overrated and the term is sloppily bandied about by those who may not be putting the requisite thought into just how utilitarian the knowledge of Black Swans actually are. Since you can’t accurately predict, nor back test against, nor adequately hedge against such events, exactly what good is a Black Swan discussion. Well, I can answer that question.

That a CEO of a silver miner sees precious metals prices rising, especially on a day like today when silver hit a new 31 year high (and gold is at a record) is not surprising. Especially since that is precisely what happened: "The head of U.S. silver miner Coeur d'Alene Mines
Corp said on Thursday that he "would not be
surprised" if silver prices reached the mid-$40s per ounce and gold
prices rose to $1,500 to $1,600 an ounce this year." What is, however,  surprising is that another prominent silver miner, Pan American silver, announced during its earning call that "it plans to produce between 23-24 million ounces of silver in 2011, down from 24.3 million ounces in 2010. The company said it expects to produce between 76,000-78,000 ounces of gold in 2011, down from the 89,555 ounces it produced last year." So despite a record price in silver, the company is unable or unwilling to mine more to keep up with demand? Perhaps the peak [blank] crowd should take a long hard look at silver.

The “Hunt Brother High” is within reach. The total demand for silver today is the same as it was in 1980, when their corning drove it to $50/ounce.
Investment demand is overwhelming industrial demand by a large margin. Should I let target creep take hold and raise my long term forecast to $100? That might be really insane! (SLV), (AGQ), (CDE), (SLW).

RANsquawk US Afternoon Briefing - Stocks, Bonds, FX etc. – 24/03/11

Two weeks ago the Anonymous hacker collective released a video indicating it was moving to a peaceful form of civil disobedience, until such time as the Fed is abolished, to be preceded by the "sign of good faith" that is Bernanke's stepping down. Needless to say, so far Bernanke has not quit. So today Anonymous' OpESR has released a second video which unlike the previous one is more or less a collage of hacker-friendly video clips. Hopefully there is some more to this latest form of anonymous activism than the clever use of iMovie...

A little closer to home....

In a very unsurprising move, Fitch just downgraded Portugal to A-, is on Rating Watch Negative, and may be downgraded further. Nobody cares since everyone knows all too well Europe is pretty much insolvent. In fact we are shocked the EURUSD is not at 2.00 on the news.

Just as Bob Pisani was getting giddy that for probably the second time in 2011 the dollar went up in concert with the Russell 2000, here comes reality washing over the true value of the world's most hated reserve currency, and forcing the DXY to drop to yesterday's lows, which incidentally are just pennies away from multi year lows. Should the Yen resume its strength forcing the BOJ et G7 to intervene again (just as ineffectively), look for the DXY to promptly take out all lows as the Bernank once again goes to the front of the currency devaluation race.

Now that both food and drinking water in Japan have been confirmed to be tainted with various stages of radioactive toxicity, Reuters provides a quick summary of the impact the three key fallout isotopes (Iodine 131, Caesium 134 and Caesium 137) have on human health, and what to look for to determine if one may have injested just a tad too much of those glow in the dark shoots...

That would be Mohamed El-Erian from Pimco, by the way, who first among the lunatic fringe (here's looking at you Goldman and Kudlow), admits that contrary to what all the Koolaid guzzlers claim, the Japanese quake may not be what the Keynesian doctor ordered after all. We urge readers to read this piece as a counterpoint to Goldman's stern defense that the Japanese quake is but a scratch, and one that will lead to world peace, prosperity and a doubling (give or take) of global GDP. In fact, El-Erian tells all the pundits who in addition to permabulls are also suddenly nuclear physicists and geologists, to shut the hell up, "as tempting as they may be, analytical shortcuts are best avoided
at this early stage. It will take time and thorough analysis to specify
the true consequences of Japan’s triple calamity, including the
longer-term impact on its economy and that of the rest of the world. The Japanese have shown admirable courage in the face of unthinkable
tragedy. I have no doubt that a successful reconstruction program will
lead their country to recovery. In the meantime, however, the urgency of
restoring a sense of normalcy and hope to a dramatically wounded
society warrants thoughtful and deep analyses." On this matter, we couldn't agree more.

Silver just passed $38 as gold just hit a new all time high. What can one say but "Thank you Chairsatan."

Very much in sync with our long-running projected timeline that Goldman will downgrade the economy within a month, to be followed by some more Hatzius-Dudley tete-a-tetes in which the current head of Goldman's economic team will make it all too clear that the Great Re-Redepression is inevitable unless the former head of Goldman's economic team sacrifices another 1-2 trillion in 25% linen/75% cotton fiatscoes at the altar of the supreme bankster, Hatzius just issued his second preliminary downgrade warning for US GDP.

I'm not sure what was going through Nero's mind at the time, but for posterity he is known as the leader who played a fiddle while the city he was responsible for crumbled all around him. I have no clue what Obama's legacy will be, but his decision to remain on spring break with his family while the world is in crisis seems questionable. Yes, I know its hard to cancel even a 'working' vacation with the kids, but in these turbulent times, we need more than pictures of him working in his 'mobile command centers'. Maybe being awarded the Nobel Peace Prize based on some campaign promises has skewed his view of what he needs to do? Maybe he defines success as the level of the S&P 500 so all is good in the world? The reality is that the world is experiencing more problems than at any time in recent memory.