United Kingdom

Some stunning remarks from Dallas Fed's Dick Fisher: " Our duty is most distinctly not to monetize?or even
be perceived as monetizing?the debt of fiscally imprudent government.
Throughout the history of nations, monetizing the budgetary excesses of
governments has proven to be a direct path to economic perdition.
Having already peeked inside that door, I feel strongly that we must
now shut it, lock it and throw away the key." Well, thanks Dick. You are only $2.6 trillion dollars late.

• Japan says economy in "severe" condition (Reuters)
• Time Running Out for US Budget Deal (FT)
• Dickering on Budget Goes Down to the Wire (WSJ)
• BOJ Puts Up $11.73 Billion for Rebuilding (WSJ)
• Libyan Rebels Blame Deadly Strike on NATO Mistake (Reuters)
• Egypt Protests Go On, Seeking New Beginning (NYT)
• As Standoff Continues, a Bleaker Outlook for Ivory Coast (NYT)
• Brazil Doubles Tax on Consumer Credit to 3% to Slow Inflation, Damp Demand (Bloomberg)

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.

A somewhat contrarian view on commodities from Global Tactic Asset Allocation: "Most commodities remain deeply overvalued. As with other assets it does not really matter in the short-term (as long as the trend is positive) but it is paramount for longer-term projections. We have little doubts that commodity long-only who buy to hold are going to experience a >50% drawdown (from current levels) on their industrial metals, crude oil and agricultural positions sometimes in the next 24 months. Demand has been artificially boosted by China strategic reserve building, infrastructure intensive fiscal stimulus, booming demand from the rest of emerging economies and, as the trend persisted, by trend followers and money managers new attraction to the sector (you know it is not correlated so you should buy them to diversify your portfolio... sorry it WAS not correlated...). The introduction of physically-based ETFs is not helping in this matter as it represents a big short-term increase in marginal demand especially when the Fed is still busy implementing QE2."

Back in February we were wondering how long before Gadaffi starts a scorched earth policy on his own country, and primarily his oil infrastructure, in a repeat of Hussein's non-triumphal departure from Kuwait. Turns out the answer is about a month and a half. With it now becoming painfully clear that the whole purpose of the humanitarian intervention is to procure preferential terms of oil imports from Libya's rebel alliance, the "humanitarian" force has forgotten that despite no airplanes, Gaddafi will likely not take too kindly to not collecting revenues from what he perceives as his natural resources. From the FT: "Oil production in rebel-controlled eastern Libya has stopped after troops loyal to Muammer Gaddafi bombarded several oilfields, the opposition said on Wednesday. The assault came hours after the rebels exported their first cargo of oil into the international market, potentially opening the door to millions of dollars of funding to sustain their uprising against Colonel Gaddafi’s 41-year rule. The attack against oilfields in the east was the first against production facilities. Previously, only port facilities and crude oil storage tanks in the Es Sider and Ras Lanuf, also in the east, were damaged during the conflict." We are confident that this escalation will give NATO the caed blanche to commence a land-based campaign and prevent further infrastructure destruction before Gaddafi causes irreparable damage to even more facilities (although Halliburton naturally couldn't care less).

• China Inflation May Hit 6%, No End to Tightening (China Daily)
• Portugal Bailout May Reach $129 Billion (WSJ)
• Brazil Takes Fresh ‘Currency War’ Action (FT)
• Obama Says Meeting ‘Narrowed the Issues’ on Budget Impasse (Bloomberg)
• Government Shutdown Threatens 800,000 As Obama Seeks Solution (Bloomberg)
• Ireland will need another bailout, says former IMF director (Guardian)
• Japan to Head Off Hydrogen Blast (WSJ)
• U.S., Italy Consider Arming Rebels to Speed Qaddafi Ouster (Bloomberg)
• European banks in further capital calls (FT)

Canadian companies have crossed a “pension Rubicon” and are continuing to dismantle traditional defined benefit plans even as the economy improves, according to a review by Towers Watson...

Gold’s two consecutive days of nominal record highs have seen some profit taking as oil is flat, the dollar is marginally higher and the euro has fallen. The ECB’s 0.25 % interest rate hike may lead to further profit taking today but rising interest rates in an increasingly inflationary environment will be positive for gold as it was from 1965 to 1981 (see charts below). It is only when real interest rates turn positive (nominal interest rates are again above the nominal rate of inflation) that gold and silver’s secular bull markets may be challenged. Inflation in the eurozone is 2.6%. Today’s interest rate rise will leave eurozone interest rates at 1.25% well below the 2.6% rate of inflation meaning that savers continue to lose out due to very low yielding deposits. Negative real interest rates will likely lead to precious metal prices continuing to rise or rather very low yielding fiat currencies falling in value versus non yielding finite gold. Rising interest rates are bullish for gold also as they may see the primary asset classes of equities, bonds and property come under pressure again.

As gasoline prices continue to surge day after day (and with WTI touching $109 today this will continue for a long time), the peasantry is getting restless. Not only that but it is getting nosy. In fact today some plebs had the temerity to seek answers from the teleprompter over the festering question of just how long will Bernanke, pardon, UK stagflation, pardon, default Portugal, pardon, healthy worldwide demand keep pushing gas prices to $4, then $5, then $6, and eventually to the price paid in Europe: about $9. The response was straight out of Charlie Munger's (non-frontrunning) playbook: "I'm just going to be honest with you. There's not much we can do next week or two weeks from now," the president told workers at a wind turbine plant (one operated by Spanish company Gamesa). "Gas prices? They're going to still fluctuate until we can start making
these broader changes, and that's going to take a couple of years to
have serious effect." And we doubt Obama's hard core union electorate will be happy at the following stab at Channel Stuffing Motors: "If you're complaining about the price of gas and you're only getting 8
miles a gallon, you know," Obama said laughingly. "You might want to
think about a trade-in." Let's hope the people don't get the same idea about the presidential office two years from now, even after the $1 billion spent on TV ads. As to the core question, we were surprised Bill Dudley was not present at Obama's side explaining how deluded complainers should just have a chilled glass of unleaded 98 Octane with their main course of deflationary iPad 2.

Debunking the myth that only huge doses are dangerous ...

If you really don't think a Pan-European bank collapse may be in the cards, you really haven't been paying attention. Things are coming to a had much more quickly than even I anticipated, and you know I'm far from optimistic in this regard.

WTI surges courtesy of a disastrous UK economic update, and expected ECB tightening. Oh wait... That must mean QE3....No....That's impossible. The San Francisco Fed said just this Monday that there is no correlation between monetization and surging commodity prices. And stocks surge just because in Weimar America, $109 crude is bullish for stocks. This will end in tears.

• More from the Oracle: Central Banks Grapple With Competing Forces (Hilsenrath)
• U.S. Sees Array of New Threats at Japan’s Nuclear Plant (NYT)
• China’s Rate Tightening Threatens Copper (FT)
• Fed’s Biggest Foreign-Bank Bailout Saved U.S. Muni Bonds (Bloomberg)
• NATO Blamed as Libyan Rebels Flee Assault By Qaddafi Forces (Bloomberg)
• Government Shutdown Looms Despite Obama's Intervention (Reuters)
• Another "brilliant" HFT "fix": SEC Unveils 'Limit' Curbs to Prevent 'Flash Crash' (WSJ)
• Ouattara forces storm Gbagbo bunker in Ivory Coast (Reuters)
• U.S. Fiscal Crisis in Spitting Distance (Laurence Kotlikoff)

Stagflation: meet economic collapse. The UK basket case is getting very, very ugly, with today's obliteration of Industrial Production putting in doubt expectations of a BOE hike. From AP: "British industrial production fell 1.2 percent in February from
January, an official report said Wednesday, marking the largest monthly
fall since August 2009 and far worse than analyst expectations for an
increase of 0.2 percent. The Office for National Statistics said a
7.8 percent drop in oil and gas extraction was the main reason for the
fall, while the manufacturing sector was flat." And the winner: "It may be that the industrial recovery is past its peak," said Samuel Tombs, U.K. economist at Capital Economics. Industrial production accounts for 17 percent of British GDP." That's the bad news; the good news is that with runaway inflation which is now surging at 5%+ the economy has got to be improving: after all where would all this demand be coming from if not from some massive latent recovery. Oh wait, what's that you say: endless liquidity? You don't say. Well, never mind then. In other news GBP crosses get obliterated as rate hike expectations are put on hold. In fact what you can put on the front burner is more money printing, both at the BOE and the Fed because central banks are so much more adept at "controlling" inflation than deflation.

Time is running out for a decision on Q/E but there is simply not enough evidence to make an informed judgement on the state of the economy and how it would react to a withdrawal of liquidity. Most analysts just look at the ISM and other supply data but Bernanke has got to make sure the economy can survive without his daily liquidity gift. In addition, if as some suggest, Q/E2 has done its job by ramping up equity markets, it still falls far short of his mandates. Unemployment is still massive (the real level is nearer 12-13%) and the participation rate continues to fall. Today there are 44.2 million Americans on food stamps, or 14.3% of the US population! Analysts also seem to forget the massive mountain of issuance coming from the Treasury this year and next. Consumer debt and confidence also matter more to Bernanke than it does to main stream analysts and housing is not helping at all and looks set fall further causing havoc at the banks again.