The deflating Dollar is the World's Reserve currency at 62% of all the money in the World and growing fast as Ben buys 'em as fast as Timmy can print them and then loans them out to the Banksters, who promptly lever that money 10:1 to buy commodities.
- Chinese cos go on global bond spree; Mainland groups have borrowed $12.2B this yr.
- Japan cuts its economic assessment as earthquake damage mounts.
- Obama said to call for cuts in entitlements, higher taxes.
- Oil hovers above $106 in Asia as investors eye crude demand amid 2-month rally.
- OPEC sees higher demand for its oil in 2011 at 29.9M barrels/day, up 400,000 bbls YoY.
- Swedish government expects public finance surplus in 2011, tax cuts in 2012.
- Taiwan halts plans to build atomic reactors after Japan crisis.
- US Import prices increased 2.7% in March on crude oil, food.
- US lacks credibility on debt, says IMF. Stringent austerity measures needed.
Silver's nearly 3% surge in trading in Asia may indicate that the long expected short squeeze may be underway. Bullion banks with very large concentrated short positions may be being forced to buy back their short positions – propelling silver higher. This could see silver surge over the record nominal high of $50.35/oz in short order. At the same time caution is merited as silver has risen nearly 10% in April so far and over 33% year to date. Speculators need to be very cautious as margin requirements may be increased again and profit taking could lead to sharp falls in price. Leveraged speculation is extremely high risk and should be avoided by investors and savers. Proof of the lack of animal spirits in the silver marker is seen in the data which shows that speculative sentiment on the COMEX (as seen in the Commitment of Traders/ COT data – see chart below) is subdued. While the total silver ETF holdings increased to a record, they are not far above the levels seen in December 2010 (see chart above). Importantly, even at $41.30/oz the dollar value of the total silver ETF holdings remains very small at just over $20.5 billion. To put that number in perspective, today bankers put a prospective value of around $60 billion on Glencore, one of the world’s largest commodity trading companies. BP has set up a fund worth $20 billion to cover legal claims from the oil spill disaster.
Adrian Douglas submits: The latest LBMA clearing statistics (Feb 2011) reveal that the LBMA bullion bank members traded a total average net daily gold volume of 18.1 million ounces with a value of $24.8 billion. Some analysts have in the past estimated that the gross volume is likely to be 3-4 times the net volume giving potentially over 70 million ounces of gross gold trading worth 100 billion dollars. This would be equivalent to trading all the gold that is mined in world each year each and every day! Clearly the majority of this trading is unbacked by physical gold. The bullion banks only make a ledger entry for gold sold or bought and as long as the client never asks for delivery the bank never has to have the gold. I have through my studies indicated that probably 45 ounces of gold have been sold for each one that exists. The bullion banking business is very opaque but it struck me that if the members of the LBMA are collectively trading a net value of $6.2 trillion annually this should be laid out and explained in the bullion banks annual reports. In analyzing the Annual reports of the major bullion banks I made some astonishing discoveries. For most of these banks their bullion banking business is entirely hidden from the accounting. In the text there is almost no mention of gold, silver, bullion, or precious metals. In fact it is impossible to know that these banks are even in the bullion banking business let alone know anything about their trades, assets and liabilities. The only exception is Scotia Mocatta (see below). The bullion banking business is completely obscured from view in the annual reports. We know from our discussion that there should be revenues of $1.2 trillion annually be reported which would make the activity the largest activity in any of the banks, yet instead it is entirely missing! How could such trading and references to it be almost entirely absent from these reports?
When we talked about these kind of target prices for silver six years ago, when the metal was still trading below $10 per ounce, people would consider us cowboys. Nowadays, things are looking more realistic, but still investors can't seem to grasp a three-digit silver price.
Well, we've got news for you: our TP of $300 for silver could turn out to be too conservative!
Gold commenced 2011 at $1,420.78/oz and with two days of trading left in the first quarter, gold is marginally higher at $1,420/oz. It is therefore flat for the quarter after another quarter of correction and consolidation. A lower quarterly close would be the first lower quarterly close in 9 quarters. This may be beneficial to some of those short the gold market who may be attempting to 'paint the tape' and engineer a lower quarterly close - in the forlorn hope that this could lead to momentum selling by trend, following hedge funds and traders. A lower quarterly close may be achieved but the fundamentals of anaemic supply and continuing strong demand both from the investment sector, but also from the jewellery and industrial sectors (dental and electronics primarily) internationally, and particularly in China and Asia in general will likely see gold continue to rise in 2011. Interestingly, March 2010 and the first quarter last year (see chart above), also saw gold flatline prior to strong gains in April and the second quarter of 2010 (Q2 10). Gold rose by nearly 6% last April and by nearly 12% in the quarter. The unresolved eurozone debt crisis and the emergence of the Japanese natural and nuclear disasters and geopolitical risk in oil producing nations means that the fundamentals today are as sound as they were in 2010 - if not more sound.
Here are some excerpts from an interview forwarded to me by Mr. Lars Schall of chaostheoren.de with oil expert F. William Engdahl. Whether you agree or disagree with Mr. Engdahl’s theories, his insight always presents perspectives given almost zero coverage by the mainstream media. Much of the fraudulent and deceptive practices of big global banks that Mr. Engdahl discusses regarding the oil markets can be extended to other commodity markets such as gold and silver.
Deplorable Portugal 12 Month Auction Validates Belgium Decision To Pull Sovereign Issuance Due To "Market Conditions"Submitted by Tyler Durden on 03/16/2011 07:22 -0500
Earlier today Portugal had a deplorable bond auction of €1 billion in 12 month Bills, which saw the interest rate paid jump to nearly 4.5% even as general demand indicated by Bid to Cover plunge from 3.1 to 2.2. And even so, the bulk of the purchasing was from Asia, read China, as the last thing Japan needs now is to rescue a insolvent Portugal, according to a finance minister disclosure. From Reuters: "The 12-month T-bill yield rose to 4.331 percent from 4.057 percent in an auction on March 2, in line with analyst expectations of around 4.3 percent and with the secondary market. It also stayed below record levels seen in December." Alas, while Portugal purchased a few days of funding, it merely confirmed that it is now effectively bankrupt as paying 4.3% for 12 months worth of debt indicates the Rubicon has long been passed. Look for Portugal to be bailed out any minute. And in attempting to avoid the same fate, Belgium decided to "postpone" its own bond issuance of 6 year benchmark notes on concern investors will puke all over the paper. "Belgium delayed the sale of a new six-year benchmark bond on Tuesday due to market volatility caused by the Japan earthquake and explosions at a nuclear power station there. Plans to issue the new bond, maturing in June 2017, were announced on Monday, with Deutsche Bank, KBC Bank and Morgan Stanley mandated as joint bookrunners. The markets are so volatile at the moment and attention is concentrating on what is happening in Japan," debt agency chief Anne Leclerq told Reuters." Luckily unlike Portugal which has no choice but to raise debt at every opportunity, Belgium has the choice to await greener pastures. For now.
With ICE and CME margin hikes - that last bastion of supply/demand imbalance suppression - no longer having an impact on crude price, it was only a matter of time before the last theatrical measure in the price arsenal was used. Per Dow Jones: "White House Chief of Staff Bill Daley said on Sunday the Obama administration is considering tapping into the U.S. strategic oil reserve as one way to help ease soaring oil prices." Speaking on NBC television's "Meet the Press," Daley said: "We are looking at the options. The issue of the reserves is one we are considering. ... All matters have to be on the table." There has been support among Senate Democrats for tapping the reserves. Senator Jay Rockefeller on Thursday became the third Democrat to ask President Barack Obama to tap America's emergency oil supply to cool prices that have risen past $100 a barrel on the strife in Libya." What our esteemed politicians fail to realize that tapping the SPR is analogous to Lehman filing an 8K declaring to the world it is now tapping directly into the Fed's discount window for its liquidity - that didn't end too well. The problem with the SPR is that as a non-marginal replacement of supply it is largely a puppet: with a capacity 726.7 million barrels, the SPR holds a 34 day reserve at the US daily consumption of 21 million barrels. The picture is slightly better when considering that the US only imports 12 MMbd, meaning there is a 58 day supply. But the biggest issue that nobody is considering, is that the maximum total withdrawal capacity is physically limited to just 4.4 million barrels per day. In other words, should the MENA escalation flare up, there is no way to physically replace all the lost output. Yet what is most troubling is that even as the US is about to start using up its reserves, Asia is actively shoring up its oil, meaning that as our own oil buffer gets ever smaller, Asia could easily dictate economic terms over the OPEC cartel as soon as a few months from now if the Bernanke liberation wave does not end any time soon.
The lack of animal spirits in the gold and silver bullion markets is also seen in the decline of the gold ETF holdings (see chart above) and the Commitment of Traders open interest (see below). Neither show any signs of speculative fever whatsoever. This would suggest that the recent record prices are due to short covering on the COMEX (possibly by Wall Street banks with concentrated short positions as alleged by the Gold Anti-Trust Action Committee or GATA and being investigated by the CFTC) and buying of bullion in the Middle East and Asia, particularly in China. While all the focus is on the geopolitical risk in the Mediterranean, the not insignificant risks posed by the European sovereign crisis, the possibility of a US municipal and sovereign debt crisis and continuing currency debasement internationally are the prime drivers of gold today. Quantitative easing, debt monetisation and competitive currency devaluations have not gone away and are leading to deepening inflation which will likely result in much higher prices in 2011 and 2012.
In a January 2009 ABC interview with George Stephanopoulos, then President-elect Barack Obama said fixing the economy required shared sacrifice, "Everybody’s going to have to give. Everybody’s going to have to have some skin in the game." For the past two years, American workers submitted to the President’s appeal—taking steep pay cuts despite hectic productivity growth. By contrast, corporate executives have extracted record profits by sabotaging the recovery on every front—eliminating employees, repressing wages, withholding investment, and shirking federal taxes. Washington’s embrace of labor market flexibility ensured companies encountered little resistance when they launched their brutal recovery plans. Leading into the recession, the US had the weakest worker protections against individual and collective dismissals in the world, according to a 2008 OECD study. Blackrock’s Robert Doll explains, “When the markets faltered in 2008 and revenue growth stalled, U.S. companies moved decisively to cut costs—unlike their European and Japanese counterparts.” The U.S. now has the highest unemployment rate among the ten major developed countries.
Dallas Fed Provides Latest Confirmation Of Corporate Margin Collapse, As Prices Paid-Received Difference Hits Fresh RecordSubmitted by Tyler Durden on 02/28/2011 10:55 -0500
Everywhere one looks (assuming one is more than just a market momentum, block order frontrunning algorithm... or a Deutsche Bank "strategist" of course), one sees relentless evidence of collapsing margins. Most recently, this was the Philly Fed, whose Price Paid less Prices Received index spread came at the highest since 1979. Well, at least it wasn't a record the Koolaiders said. Alas, that rebuttal will not work for the Dallas Fed. The latest diffusion index, which came at 17.5, on expectations of 13.0, confirmed two very much expected things: i) economic "growth" continues to be predicated on inventory stockpiling, as has been the case for the past two years, which is nothing but a highly speculative bet that demand will eventually pick up (and we pray the Dallas Fed respondents use FIFO not LIFO accounting), and ii) margins are getting crushed. Recreating the Philly Fed Prices Paid less Prices Received index shows that the differential of 45.50 is now at all time wides. Notably, the last time the spread was at or above 45 was in early 2008 following which everything went to hell. Expect to see many more diffusion indices confirm the relentless erosion in corporate margins, which in turn will result in either accelerating end-user inflation (unlikely), or imminent margin and EPS downside guidance, which even a reluctant Wall Street will have no choice but to take into account over the next several weeks.
And so the sunset of the QE2 inspired Golden Age begins: From JPM's Michael Ferolli: "We are revising down our projection for the annual growth rate of real GDP in Q1 from 4.0% to 3.5%. Prior to this week, first quarter growth had already been tracking a little soft relative to our forecast. In particular, consumers stumbled a bit to start the year, and while we expect them to pick up the pace some in coming months, the recent rise in energy prices poses a notable headwind. Most cyclical indicators remain quite favorable, and the unwind of adverse weather effects could support next quarter growth; for these reasons we are maintaining our second quarter growth forecast of 4%. If energy prices remain at their elevated level, however, this would pose a challenge to our outlook for next quarter. Another downside risk to Q2 GDP growth comes from the federal government sector, which could see a faster move to austerity than is in our current forecast. We've also revised our headline CPI forecast, particularly in Q1 where we now see the CPI increasing at a 4% annual rate. Below is our updated forecast spreadsheet."
WTI’s premium disappeared about a year ago and in recent days it has been trading at more than a $10/bbl discount to Brent mainly due to rising inventory levels at Cushing OK. Some believe WTI may be undervalued by at least $12.
European Sovereign Debt Crisis Deepening - Risk of Contagion And Bond Market Crash, And Why Rising Rates Mean Gold StrengthSubmitted by Tyler Durden on 02/16/2011 09:26 -0500
There is a real sense of the “calm before the storm” in markets globally. Complacency reigns, despite signs that the sovereign debt crisis in Europe is deepening and that Japanese and US bond markets also look very vulnerable due to rising inflation, very large deficits and massive public debt. US Treasuries have been sold by some of the largest investors (both private and sovereign) in the world recently (see news). These include large creditor nations Russia and China but also PIMCO, the largest bond fund in the world. A global sovereign debt crisis is now quite possible. At the very least, we are likely to have a long period of rising interest rates which will depress economic growth. Contrary to some misguided commentary, rising interest rates will benefit gold as was seen when interest rates rose sharply in the 1970s. It was only towards the end of the interest rate tightening cycle in 1980, when interest rates were higher than inflation, that gold prices began to fall.