Archive - Apr 8, 2011

The borg collective is out in full force, with more gibberish on 'transitory inflation' coming from Atlanta Fed's Lockhart: "As I've said before, my expectation is that commodity price increases that are now translating into accelerating headline inflation will be transitory. In support of this claim, I'll make three points. First, these increases have been driven by global pressures in markets for food commodities, energy, and other commodities. These pressures are largely the result of supply-and-demand factors, some of which are one-off in nature. Second, inflation indices are made up of a wide spectrum of goods and services that don't uniformly have these commodities as inputs. Roughly two-thirds of consumer spending is on services, which are not materials-intensive. And, third, to the extent that some goods and services have these commodity inputs, the pass-through to ultimate consumer prices is limited." Fair enough: on the other hand one can present the following point indicating inflation is only transitionary to higher prices: "reality."

The GFMS World Silver Survey released yesterday shows that investment demand increased by a very 47% in 2010 and industrial demand is very robust. Silver’s nominal high of $50/oz is looking like it will be seen sooner rather than later given the degree of demand and momentum. Any sell off will likely be short but sharp prior to a resumption of silver’s secular bull market and silver’s inflation adjusted high of $150/oz remains a long term price target. The long term silver chart above shows how silver rose from $1.28 to $49.45 (on a weekly basis) from 1971 to 1980 or a rise of 38 times. Given that the conditions today are far more bullish than they were in the 1970’s silver may replicate this performance. Were silver to replicate the 1970’s performance it would have to rise from a low of $4.10 in 2001 to over $150/oz – which as it happens is the all important inflation adjusted high. Whether silver will plunge or not at some stage is irrelevant if one is buying for diversification, safe haven and store of value reasons. When silver reached $10, $15 and $20 there were similar warnings which may have dissuaded some of the public from buying for the long term and diversifying.

Some more thoughts on companies fleeing defined benefit plans...

A quiet data calendar to close the week, as eyes are now focused away from Europe and on the hill. Futures are up, commodities are surging, as the dollar destruction continues. There is no POMO.

Below is the complete list of banks to take, and then pass, the next farcical round of European stress tests. Just as a reminder of the complete useleness of this exercise, the last time Irish banks appeared on this list, they all passed swimmingly. They were all bailed out months later. We can't wait for Portugal, Spain and Italy to all pass without a single failure. Perhaps European taxpayers should inquire what percentage of the near-record gas price is financing this ridiculous waste of funds, whose only real outcome is building confidence in the utter cluelessness of Euro-leaders.

The distraction factor today will be 100%, as the government has decided to draw out the government shutdown decision to the very end. Per Reuters, Hoyer has said that both sides are very close to a shutdown "deal" with 70% agreement on dollars. Supposedly 30% disagreement on a binary issue is good news. "U.S. House of Representatives Democratic Whip Steny Hoyer said on Friday that budget negotiators were "very close" to a deal to avoid a shutdown of the federal government. "There's no deal yet unfortunately," Hoyer told NBC's Today show program as negotiators worked furiously to reach agreement. "I think we're very close. I think we've come 70 percent of the way in terms of dollars. That's a long way to go in trying to reach compromise."" Obviously the disagreement percentage will drop more and more as this soap opera season draws to a close, with only one logical outcome, which obviously will be one of market relief, even as the DXY is pennies away from both 2008 and 2009 lows, both of which preceded major global market calamities.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 08/04/11

The market stumbled a bit on Thursday on news of a potential government shutdown (and politicians quibbling over a $40B budget difference is like...