GEAB N°40 is available! Spring 2010 – A new tipping point of the global systemic crisis: When the slip knot around public deficits is going to strangle Western states and their social security systems
- Public announcement GEAB N°40 (December 16, 2009) -
Yesterday's Top Story: Gold heading for $1,500 before mid-2010- SocGen
The bank suggests buying into the recent commodities correction as it expects precious metals to outperform the rest over six months as investors' fears intensify about inflationary pressures exacerbated by political interference.
Author: Rhona O'Connell
Posted: Wednesday , 16 Dec 2009
In its latest quarterly Commodity Review, investment bank Société Générale forecasts continued strength in investor flows into commodities in the first half of 2010, helped by central banks keeping policy rates at extremely low levels. The bank suggests that, not least due to the size of the output gap in the United States, the recently developed fears of an increase in FOMC interest rate policy has been overdone and therefore recommends buying into the latest correction in commodity prices.
Conditions for gold rally could crush other assets
Gold at $3,000 an ounce would turn world to a "terrible place," says one analyst
By V. Phani Kumar & Myra P. Saefong, MarketWatch
HONG KONG (MarketWatch) -- Several analysts predict a rise in gold prices to dizzying heights in the next two years, but if those forecasts prove true, even gold bugs will need to stay alert to ensure that gains in the metal aren't overwhelmed by losses on other parts of their portfolio.
That's because the economic conditions under which one would expect gold to thrive resemble an investor's nightmare -- possible hyperinflation, collapse of the U.S. dollar or a surge in yields on Treasurys -- may be conditions under which other asset classes such as fixed income and equities could take a major hit.
China's rising appetite for buillion and base metals
LONDON (Commodity Online): No country in the world has such a rising appetite for base metals like copper, aluminium, lead and precious bullion metals such as gold, silver and platinum like China. The dragon country is going all out to amass massive quantities of base metals and bullion in its reserves.
Following is an analysis from BNP Paribas Fortis metals monthly - December 2009, Fortis/VM Group on China's thirst for base metals and precious metals:
China's rapacious appetite for base metals has shaped this market throughout 2009; without China, and the promise of its long-term growth, prices would be languishing at almost half their current level. Now that China has reiterated it will maintain a relatively loose monetary policy in 2010, and forecasts for China's GDP growth next year are already exceeding 9%, the year ahead is unlikely to see much price weakness for base metal's if anything, the reverse. We also expect speculative investment levels to rise, given what is now almost certain to be an effectively zero interest-rate environment during the whole of 2010. That spells persistent weakness for the US dollar and, with economic recovery likely across almost all the OECD countries, 2010 is shaping up to see base metals prices shift beyond their 2009 highs and perhaps challenge levels last seen in H1 2008. The only real negatives are the massive inventories and the threat of over-supply, as miners and smelters ramp-up by too much, and too soon.
The gold price soared above $1,200/oz in December and then fell back $70/oz in a single day. With the weight of investment, money that has built up in gold over the last few months such volatile trading is inevitable. Until we have a much more stable global macro-economic environment, we see gold prices remaining firm at high and possibly higher levels, although the waters will become progressively choppier.
Silver underperformed gold in the latest leg of their recent tandem-rally, and slightly outperformed, when gold gave up some of its price gains. In the longer-term, we envisage silver performing relatively better than gold, given its greater industrial demand profile and potential new applications. But short-term the focus is on financial and economic uncertainties - and the mini-panic will sustain gold much more than silver.
Jewellery demand continues to provide a floor to the platinum market, as shown by the latest data regarding Chinese demand. Auto catalyst demand, however, could be hit by what is looking like a much lower figure in Germany in 2010 for new car sales.
Palladium has fallen back, along with other precious metals, but its supply demand fundamentals have been improving. The only major concern for its medium-term outlook is whether the recent remarkable pace of Chinese car sales growth can be sustained.
Aluminium demand is improving slowly, but production is relentlessly rising. How this dynamic plays-out, and the extent to which huge exchange and off market stocks might be eroded, will determine the price trajectory in 2010. For now, we regard this as the base metal least likely to rise significantly in price next year - at least until visible stock levels come down sharply
Near-term weakness in supply-demand fundamentals has done little to slow the rally above $7,000/t, because copper's longer-term prospects are extremely price supportive, and speculative investment remains determinedly encouraged by this prospect. There appears little ahead to change sentiment, and we are bullish on copper's price promise in 2010.
Nickel remains a puzzle. On the one hand, LME warehouse stocks are rising, and new mine supply is waiting in the wings. On the other hand higher exchange nickel stocks might not tell the whole story, since the global nickel, market was in deficit in Q3 2009 and fairly balanced so far in Q4.
Lead and zinc
Lead and zinc are tracking copper and in zinc's case will continue to do so for much of 2010. The lead rally, we suspect, will come off the boil in Q1 2010, as supply builds and demand weakens slightly.
Indonesia is again pledging to reduce output in 2010, demand is picking up, China's production is still below its peak - the scenario for 2010 is for stronger prices especially if OECD countries recover more normal rates of economic growth.
There is now some respite on the horizon for OECD steel makers, but prices are only inching up, as demand is slow to rise. However, H1 2010 will see a marked improvement as restocking gets into full swing, but H2 2010 may see the emergence of Chinese steel exports, which could crimp prices just as they get going.
Margins are tightening and even moving into negative territory as feedstock costs rise on higher oil prices. But demand for polypropylene and linear lowdensity polyethylene remains weak and costs cannot be completely passed to consumers. Supply shutdowns should follow, with conditions improving by Q2 2010.
Hoffa Says Goldman Sachs Driving YRC Into Bankruptcy
By Pierre Paulden and Shannon D. Harrington
Dec. 17 (Bloomberg) -- International Brotherhood of Teamsters President James Hoffa said Goldman Sachs Group Inc. is creating derivatives trades that would profit from the bankruptcy of YRC Worldwide Inc., the trucking company trying to avert failure with a debt exchange.
The most profitable securities firm in Wall Street history “is actively soliciting bond trades for clients and underwriting credit-default swaps to benefit from a failed exchange and resulting bankruptcy,” Hoffa, the union leader, wrote in a letter dated yesterday to Goldman Sachs Chief Executive Officer Lloyd Blankfein.
YRC, the biggest U.S. trucker by sales, is extending the exchange offer deadline to Dec. 23, after investors holding 75 percent of its debt initially agreed to the exchange, below the 95 percent required by bank lenders. As of 5 p.m. in New York yesterday, participation fell to 57 percent, the Overland Park, Kansas-based company said in a statement. The company said it believes some bondholders have withdrawn because they want to tender their notes only on the expiration date.
Citi Blames Gov't on Outcome of Equity Offer
As banks clear the TARP hurdle, Citi laments Treasury's willingness to let Wells Fargo offering hit the market, Barrons.com's Bob O'Brien reports.
Atlanta-based RockBridge Commercial Bank became the 25th Georgia-based bank to fail this year. The FDIC was unable to find another institution to take over the failed bank, and so will mail checks to retail depositors for insured funds.
RockBridge Commercial Bank had roughly $294 million in assets and $291.7 million in deposits as of Sept. 30. Its failure will cost the federal deposit-insurance fund $124.2 million, the regulator said.
Eric Sprott: The Fed Is A Ponzi, The Treasury Purchase Data Is A Lie
Joe Weisenthal | Dec. 24, 2009, 7:59 AM
For your holiday edification, here's Eric Sprott railing against the Fed, and claiming fictitious numbers. (via ZeroHedge)
JPMorgan: Short The Dollar, Buy AAA CMBS, And Go Long Emerging Market Credit In 2010
The Pragmatic Capitalist | Dec. 24, 2009, 7:36 AM
(This guest post originally appeared at the author's blog)
JP Morgan has been one of the more prescient banks on Wall Street in the last few years. Not only did management steer them clear of many of the troubles the other banks were in, but their analysts have been spot-on with regards to the trading environment. They were believers of the reflation trade before the term was even coined. Now, they see many of the trends from 2009 continuing into 2010 and here’s how their 10 favorite ways to play it:
Our top 10 trades are:
(1) long EM equities;
(2) short USD versus EM FX;
(3) short USD versus EUR and JPY in 1H;
(4) short US agencies and MBS outright;
(5) long US HY outright;
(6) overweight US HG and EM external debt versus USTs;
(7) long EM corporate credit;
(8) overweight cyclicals within equities;
(9) long lower-tier II bank bonds outright and versus government debt;
(10) long AAA CMBS/RMBS and A-rated CLOs.
Renminbi set to replace US dollar for trade in Asia Pacific
Author: Georgina Lee
Source: Asia Risk | 27 Dec 2009
Hong Kong moves to position itself as clearing hub for renminbi-based transactions
The Chinese renminbi is taking on an increased role in the Asia-Pacific region, and is expected over time to replace traditionally dominant currencies such as the US dollar and the euro for certain transactions.
Can China beat US in gold reserves in 10 years? By David Lew
China has set the most ambitious task on gold reserves and gold mining: take the country’s gold holdings from the current 1054 tonnes to a massive 10,000 tonnes in the next 10 years.
Is this grand task a realistic plan or a golden dream? Chinese officials say the dragon country wants to overtake the United States in gold reserves. America is the world leader in gold reserves. America owns 8133 tonnes of gold reserves that accounts for 76.5% of its foreign exchange reserves. Naturally, the Chinese plan is to ensure that bulk of its foreign exchange reserves--currently held in the forms of US dollar and bonds--is turned into gold reserves..
ShadowStats.com founder John Williams explains the risk of hyperinflation. Worst-case scenario? Rioting in the streets and devolution to a bartering system.
Thursday, December 31, 2009
By Phil Maymin
Do you believe everything the government tells you? Economist and statistician John Williams sure doesn't. Williams, who has consulted for individuals and Fortune 500 companies, now uncovers the truth behind the U.S. government's economic numbers on his Web site at ShadowStats.com. Williams says, over the last several decades, the feds have been infusing their data with optimistic biases to make the economy seem far rosier than it really is. His site reruns the numbers using the original methodology. What he found was not good.
Maymin: So we are technically bankrupt?
Williams: Yes, and when countries are in that state, what they usually do is rev up the printing presses and print the money they need to meet their obligations. And that creates inflation, hyperinflation, and makes the currency worthless.
Obama says America will go bankrupt if Congress doesn't pass the health care bill.
Well, it's going to go bankrupt if they do pass the health care bill, too, but at least he's thinking about it. He talks about it publicly, which is one thing prior administrations refused to do. Give him credit for that. But what he's setting up with this health care system will just accelerate the process.
Where are we right now?
In terms of the GDP, we are about halfway to depression level. If you look at retail sales, industrial production, we are already well into depressionary. If you look at things such as the housing industry, the new orders for durable goods we are in Great Depression territory. If we have hyperinflation, which I see coming not too far down the road, that would be so disruptive to our system that it would result in the cessation of many levels of normal economic commerce, and that would throw us into a great depression, and one worse than was seen in the 1930s.
What kind of hyperinflation are we talking about?
I am talking something like you saw with the Weimar Republic of the 1930s. There the currency became worthless enough that people used it actually as toilet paper or wallpaper. You could go to a fine restaurant and have an expensive dinner and order an expensive bottle of wine. The next morning that empty bottle of wine is worth more as scrap glass than it had been the night before filled with expensive wine.
We just saw an extreme example in Zimbabwe. ... Probably the most extreme hyperinflation that anyone has ever seen. At the same time, you still had a functioning, albeit troubled, Zimbabwe economy. How could that be? They had a workable backup system of a black market in U.S. dollars. We don't have a backup system of anything. Our system, with its heavy dependence on electronic currency, in a hyperinflation would not do well. It would probably cease to function very quickly. You could have disruptions in supply chains to food stores. The economy would devolve into something like a barter system until they came up with a replacement global currency.
What can we do to avoid hyperinflation? What if we just shut down the Fed or something like that?
We can't. The actions have already been taken to put us in it. It's beyond control. The government does put out financial statements usually in December using generally accepted accounting principles, where unfunded liabilities like Medicare and Social Security are included in the same way as corporations account for their employee pension liabilities. And in 2008, for example, the one-year deficit was $5.1 trillion dollars. And that's instead of the $450 billion, plus or minus, that was officially reported.
These numbers are beyond containment. Even the 2008 numbers, you can take 100 percent of people's income and corporate profit and you'd still be in deficit. There's no way you can raise enough money in taxes.
What about spending?
If you eliminated all federal expenditures except for Medicare and Social Security, you'd still be in deficit. You have to slash Social Security and Medicare. But I don't see any political will to rein in the costs the way they have to be reined in. There's just no way it can be contained. The total federal debt and net present value of the unfunded liabilities right now totals about $75 trillion. That's five times the level of GDP.
What can we, the people, do to stop the government from, you know, taking all our money?
We should have acted 20 years ago. There's not much you can do at this point to prevent the eventual debasement of the dollar. This involves both sides of the political spectrum. It's not limited to the Republicans or the Democrats. They've both been very active in setting this up.
What can individuals do?
The only thing individuals can do now is look to protect themselves. I wish I could see a way, but shy of severe slashing of the social programs that is so politically reprehensible and would create such problems and social unrest, I don't see that as a practical solution.
If you're a young 20- or 25-year-old guy or gal, would you move to another country? What would you do?
We still have a great country. We're going through a period of economic pain. It's happened before. This is the kind of thing that's taken us decades to get into and it will take us decades to get out. Although the hyperinflation is going to be limited largely to the U.S., the economic downturn will affect things globally. I can't tell you how things will go with a hyperinflationary Great Depression, which is where I see things going.
It's the type of thing that will tend to lead to significant political change. People tend to vote their pocketbooks. You could have the rise of a third party. You could even have rioting in the streets. I'm not formally predicting that — anyone can run these different scenarios. For the individual, what you need to do, from an investment standpoint, look to preserve your wealth and assets. Don't worry about the day-to-day fluctuations in the markets. What I'm talking about here is over the long haul...
[Gold is] going to be highly volatile, as will the dollar, over the near term, but longer term, physical gold I would look at as a primary hedge for preserving the purchasing power of your wealth and assets. Maybe some physical silver. Get some assets outside the U.S. dollar. I might even look to move some assets physically outside the United States. The key here is to look at a longer range survival package, battening down the hatches, and preserving your wealth and assets during a very difficult time. Once you're through that, you'll have some extraordinary investment opportunities, and I can't tell you what it's going to be like on the other side of this crisis.
Adjusted for Inflation, Dow's Gains Are Puny
BY E.S. BROWNING
Many investors realize that stocks have been among the worst investments of the past decade. But they may not realize quite how bad the decade was, because most people forget about the effects of inflation.
Despite its 2009 rebound, the Dow Jones Industrial Average today stands at just 10520.10, no higher than in 1999. And that is without counting consumer-price inflation. In 1999 dollars, the Dow is only at about 8200 and would have to rise another 28% or so to return to 1999 levels. Using today's dollars and starting at 10520.10, the Dow would have to surpass 13460 to ...
India Army ready for war against China, Pakistan
Wednesday December 30, 2009 (1405 PST)
NEW DELHI: India is preparing for a possible `two-front war` with China and Pakistan, our sources quoted an Indian newspaper saying Wednesday.
The newspaper said the Indian Army is now revising its five-year-old doctrine to effectively meet the challenges of war with China and Pakistan, deal with asymmetric and fourth-generation warfare, enhance strategic reach and joint operations with IAF and Navy.
Work on the new war doctrine -- to reflect the reconfiguration of threat perceptions and security challenges -- is already underway under the aegis of Shimla-based Army Training Command, headed by Lt-General A S Lamba, sources told the Indian newspaper.
It comes in the backdrop of the 1.13-million strong Army having practiced -- through several wargames over the last five years -- its `pro-active` war strategy to mobilise fast and strike hard to pulverize the enemy.
GATA sues Fed to disclose gold market intervention records
Submitted by cpowell on Wed, 2009-12-30 18:33. Section: Daily Dispatches
2p ET Wednesday, December 30, 2009
Dear Friend of GATA and Gold:
GATA today brought suit against the U.S. Federal Reserve Board, seeking a court order for disclosure of the central bank's records of its surreptitious market intervention to suppress the monetary metal's price.
The suit was filed in U.S. District Court for the District of Columbia and targets Fed records involving gold swaps, exchanges of gold with foreign financial institutions. In a letter dated September 17 this year to GATA's law firm, William J. Olson P.C. of Vienna, Virginia, (http://www.lawandfreedom.com) Fed Board of Governors member Kevin M. Warsh acknowledged that the Fed has gold swap agreements with foreign banks but insisted that such documents remain secret: