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The Six Words That Dominate the Financial Market
THE most
important dynamic in the financial world today is that of the monetary policies
between China and the US. This relationship can be summated in six words:
The US wants inflation, China DOESN’T.
China has
now hiked interest rates three times in the last four months. It’s also raised
reserve requirements at several of its banks. And it is rumored to be planning
a 30% real estate market crash.
China is a
country controlled by a small sliver of rich bureaucrats. They can only remain
in power so long as the Chinese economy continues to grow and unemployment is
contained. This is why China pumped some $580+ billion (nearly 14% its GDP at
the time) into its economy.
This policy
was further exacerbated by the US Federal Reserve’s money printing. All told
the Fed has pumped TRILLIONS of Dollars into Wall Street. And Wall Street has
done what it does best (aside from paying bonuses): funneled this money into
risk assets to generate returns.
Which has
resulted in Agricultural commodities EXPLODING higher in price:
What you’re
looking at is a 65% increase in the ENTIRE Agricultural Sector in a little over
seven months’ time. In the US, where food is so processed it’s barely food
anymore, this has resulted in significantly higher food prices.
However, in emerging
market economies (most notably the Middle East, India, and China), where
hundreds of millions of people live off $2 per day or even less, the increase
in food prices has resulted in outright starvation and riots.
This is
going to be making things VERY difficult for the Chinese government. Social
unrest has already unseated several regimes in the Middle East. And the same
formula that created those situations (tons of poor, repressed folks no longer
able to afford food) exists today in China as well.
With that in
mind, expect the relationship between the US and China to deteriorate in the
coming months. The flirtation underlying trade tensions (steel and tires) we’ve
already seen will erupt into full-scale trade wars. We could very well even see
an actual physical war the way things are heading.
With that in
mind, now is the time to be preparing for all eventualities. This means buying
physical Gold and Silver, stockpiling food and supplies, etc. We will be seeing
shortages at some point in the future. And a little preparation now can go a
long way towards bettering the future.
Best
Regards,
Graham
Summers
PS. If
you’ve yet to take steps to prepare your portfolio for the coming inflationary
disaster, our FREE Special Report, The
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Fed is powerless to stop it, and three investments that absolutely EXPLODE as a
result of this.
All in all
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The question really is who will be around to solve this inflation mis-match. I feel when we are 9 billion on earth, the question will become futile. Buy magical beans and play at being Jack with his bean stalk. Leave the rest to Midas and his sad ass. I prefer the sexy chick that laid the golden egg.
In many arms of research when you have assembled the data you can reuse and rework it so that you get multiple journal papers out of the same idea and numbers as long as you have it coming from a slightly different angle each time.
Where you would have got one research paper you can get maybe 5 or 6 cloned (but slightly different) tedious articles.
i'm feeling a similar thing going on with mr summers.
To be a smart ass
It is 7 words :) Doesn't = "Does not"
Now, that's word inflation
*bad-um cha!* (drums)
Not the first time the US uses starvation to open up a market. The US citizens nature is eternal.
it's just the dawn of the new American foreign policy....food for oil.
Suddenly, I grasp the deep seated thinking of George W. Bush and Dick Cheney. All this time, I was deluded into thinking that corn and beans into ethanol programs were simply a naked attempt to buy support from mid-Western red state farmers at the expense of gasoline-sucking coastal blue state voters.
But, the last few weeks have cast the scales from my eyes, and the brilliance of this move has been revealed. By removing so much rich and productive acreage from food production in the USA, the food shortages of the last year were created. These food shortages and the resultant food price inflation were the proverbial straws breaking the camel jockeys' backs. The food riots may yet extend to Iran, with the result that a whole set of repressive regimes may be be ended. Oil spigots will be opened by cash strapped countries, and oil will spiral back to $40/bbl. With cheap gas, the ethanol scam will be ended (saving the feds billions in subsidies), food exports will soar (helping mask the devaluation of the US$ temporarily), and Detroit's big cars will once again be popular.
It's genius, I tells ya, sheer genius.
Food won't be a problem for China. They'll just march over the mountains and eat some of those tasty, tasty Pakistanis before marching into Iran and then Iraq to take the oil, and then on to Syria to build a Mediterranean port and build some missile sites they can point at Europe. Problem solved!
Chinese marching up the Euphrates...I think that's in Revealation somewhere.
The human race is running up against limits that nature has set. Our own greed and stupidity isnt helping at all. Given all that we will be lucky to avoid a nuclear holocaust.
The overall feeling I get isn't good. It's starting to look like a failed experiment.
http://timesofindia.indiatimes.com/world/china/China-ready-to-go-to-war-to-safeguard-national-interests/articleshow/7482264.cms#ixzz1Dngi7fee
I have to wonder how much of the massive run up in ag commodities is due to supply versus demand and how much is due to a bunch of algos turned loose on the commodities. Some of these markets are far smaller than one would imagine (cotton comes to mind)...a few algos each with a couple of $100 million to play with would be sufficient to produce what we have seen in that market, especially since the ever rising price also encourages hoarding of the commodity.
A friend of mine works at a fund that for years has used trend following programs to invest in ag commodities. In the last six months they had money thrown at them by investors and now manage 5X more than they did less than a year ago.Two years ago they couldn't interest hardly any investors. That is one I know about...so there are probably about 1,000 more I do not know about.
It looks very enticing, but these ag trades could easily reverse by 1/2 no problem
WHAT?? You mean be one of those EVIL HOARDERS??!!
Newspeak definition of "hoarding": Owning that which those in power wish to obtain by force, or owning those things which make one less subservient to, and dependent upon, those in power.
Peasant farmers during the Russian revolution/civil war were considered "hoarders" if they kept wheat to plant the next year. This seed was confiscated and eaten with obvious results.
I do not believe that I have ever seen or heard the words "hoarding" or "hoarder" used by anyone other than those with malicious, sociopathic, statist designs in mind.
BTFD is only 4 words!
"BTFD, you idiot" is 6 words.
"you can't eat gold" is 4 words
"you can eat plastic rice, peasant" is 6 words.
Oddly, I feel better now.
Thats decider damn it.
Watch the sky. The weather good or ill, will be the big deceider. Bad ag weather= more unrest AND lots more dead people.
There might be more unrest, but this is a blatant lie:
That's wrong. If it was true then we wouldn't be seeing a record high WTI/Brent spread, right? WTI crude is right in the US, as close to Wall Street as it gets. Still it did not get "manipulated up".
Why? Because the WTI price, like other commodities, is predominantly set by supply and demand forces.
While the Fed's easing (which, for the record, was nowhere close to the trillions claimed) may drive up equities, it has limited effects on global supply and demand forces.
But there are more facts. To believe that Bernanke's 5% weakening of the dollar has resulted in 40%+ global food price increases, you'd also have to believe that Greenspan's weakening of the dollar by 40% during the Bush administration:
http://research.stlouisfed.org/fred2/graph/fredgraph.png?&chart_type=lin...
... should have resulted in food price increases of 240%. Still they didn't. To assume that Wall Street would have ignored a nice speculative category of assets with lots of Fed printed dollars available would be rather naive ...
And there are even more facts - compare commodity prices with food commodity prices:
https://lh5.googleusercontent.com/_VgJQTp0Bsf0/TU6_YfTtTSI/AAAAAAAAAMU/2...
Food commodities clearly stayed mostly flat during QE1 and the stimulus - still somehow mysteriously they started going up in the early summer of 2010. (Front-running the Fed's August inflation report and its QE2 effort by a few months - via a time machine I suspect.)
What happened last summer? Record heat in Russia and other, key grain-producing areas:
http://news.nationalgeographic.com/news/2010/08/photogalleries/100810-ru...
And record hot global climate in 2010:
http://data.giss.nasa.gov/gistemp/tabledata/GLB.Ts+dSST.txt
Which happened even though we were at the solar minimum. It all follows clear, multi-decade trends of global warming:
http://www.ucar.edu/news/releases/2009/images/temps_2.jpg
All in one, the "evil Fed caused global food price inflation" claim so frequent here on ZH is contradicted by facts and logic, and it is little more than naive, paranoid rubbish.
Since that argument is such a key point of this article it renders the whole article and the advice of "Graham Summers" rubbish as well.
Just a few facts to consider before you go off investing based on his 'advice' :-)
I welcome constructive criticism of the hard data and arguments I laid out in this reply.
Btw., here's another factually incorrect statement of the article:
The Fed does not print yuans. If China decides to under-cut US export prices every time the dollar weakens (stealing US jobs in essence), if it voluntarily sells yuans and buys dollars (against multiple US requests not to do that), it gets to keep the broken pieces.
To put it differently:
I know it's fashionable to blame the Fed for everything, but to blame China's problems on the Fed is mixing up basic laws of cause and effect. If China selling the yuan and buying dollars hurts them, then they might as well stop doing that?
Yes, there were some kernals of truth and wisdom embedded in this mass of crap. And yet ... still more critical thinking wanted!
MCTW: My new favorite (and automatic) "flag as junk".
Paul Krugman, is that you?
So I guess you disagree with my points.
Do you have any proof for your claims and do you have any data to support those views?
On a related note, here is some breaking news, Solar Cycle 24 is heating up again: sunspot group 1158 has produced the strongest solar flare in more than 4 years (and a massive X2 one - heading earth-wards):
http://blogs.discovermagazine.com/badastronomy/2011/02/14/first-earthwar...
Movie of the flare:
http://spaceweather.com/swpod2011/15feb11/x2flare.gif?PHPSESSID=sr7r36b4...
And that's just the beginning - the peak of the solar cycle is expected to somewhere around 2013/2014.
Not the best news for this year's and next year's harvest - and 2010 was the hottest year on record already, with a solar minimum - it's anyone's guess how hot 2011 is going to be with a strong solar cycle ...
Remember: demand for food is so inelastic that just -1% of grain supply reduction needs a +20% food price increase before demand will drop by 1% as well ...
Global cooling bitchez.