Archive for October, 2009

Great Article – shows how out of touch political leaders have become

Saturday, October 31st, 2009

We’re Governed by Callous Children
Americans feel increasingly disheartened, and our leaders don’t even notice.
By PEGGY NOONAN, Opinion Piece, Wall St. Journal

The new economic statistics put growth at a healthy 3.5% for the third quarter. We should be dancing in the streets. No one is, because no one has any faith in these numbers. Waves of money are sloshing through the system, creating a false rising tide that lifts all boats for the moment. The tide will recede. The boats aren’t rising, they’re bobbing, and will settle. No one believes the bad time is over. No one thinks we’re entering a new age of abundance. No one thinks it will ever be the same as before 2008. Economists, statisticians, forecasters and market specialists will argue about what the new numbers mean, but no one believes them, either. Among the things swept away in 2008 was public confidence in the experts. The experts missed the crash. They’ll miss the meaning of this moment, too.

The biggest threat to America right now is not government spending, huge deficits, foreign ownership of our debt, world terrorism, two wars, potential epidemics or nuts with nukes. The biggest long-term threat is that people are becoming and have become disheartened, that this condition is reaching critical mass, and that it afflicts most broadly and deeply those members of the American leadership class who are not in Washington, most especially those in business.

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Dont mean to gloat, but we were right

Saturday, October 31st, 2009

I posted this chart almost 2 years ago.

Gold Secular Bull Chart

Gold Secular Bull Chart

We expect to see a pullback going into November as everything sells off, including metals, but it will be back to overall trend after that.

Pension Funds to Buy Gold as Insurance, McGuire Says

By Kim Kyoungwha

Oct. 23 (Bloomberg) — Pension funds will increase gold holdings to acquire “financial insurance,” pushing prices higher as currencies drop, according to Shayne McGuire, director of global research at the Teacher Retirement System of Texas.

“I think the largest institutions like our own are realizing that we barely own any,” McGuire said in an interview in Hong Kong. “The same thing applies to most of the pension funds which manage trillions of dollars in world wealth.”

Record government debt and interest rates close to zero percent are pushing gold higher for a ninth straight year as investors seek to protect their wealth against the prospect of rising inflation and currency debasement. Teacher Retirement, backed by $95 billion in assets, has launched its first internally managed gold fund, worth $250 million, invested in precious metals, mining stocks and exchange-traded funds. McGuire is the portfolio manager of this new fund.

The fund is “a reflection of our interest in gold,” said McGuire, the author of “Buy Gold Now” published in March 2008 that correctly predicted the metal will rally. “That’s mostly because of diversification” that benefits our overall portfolio.

Gold represents only 0.4 percent of total global financial assets valued at around $200 trillion in 2007, McGuire said, adding the future focus for the metal was investment demand.

“The interest in the gold sector continues to be strong,” said Stephen Goodman, investment banker with New York-based Casimir Capital L.P. “We are pleased to connect a growing number of institutional investors globally with opportunities.”

Losses, Writedowns

Gold for immediate delivery climbed to a record $1,070.80 an ounce on Oct. 14 and traded at $1,059.25 at 4:42 p.m. in Singapore. It has risen 47 percent in the past year. Gold for December delivery in New York traded at $1,059.70. McGuire said it’s “difficult to estimate how quickly it will rise,” and saw “significant upside” in the next two to three years.

The U.S. Dollar Index, which measures the currency against those of six major trading partners, has fallen 7.5 percent this year as President Barack Obama increased the nation’s marketable debt 22 percent to $7.01 trillion to revive growth.

Financial institutions worldwide have reported credit losses and writedowns of about $1.62 trillion since the start of 2007, when the credit crisis began. Group of 20 governments have pledged about $11.9 trillion to ease credit and revive economic growth, according to the International Monetary Fund.

‘Financial Insurance’

“I don’t think the question really is what is gold worth but what are currencies not worth,” McGuire, 43, said yesterday. “Consider the tremendous fiscal excess that major governments have made to prevent the world economy from collapsing,” he said. Owning gold today is “financial insurance,” he said.

McGuire, with 15 years of international financial experience, has worked for the seventh-largest pension fund in the U.S. since 2001. He had managed a $2 billion European equity portfolio and was ranked among the best Latin American analysts by Institutional Investor in 1995 and 1996, he said.

Teacher Retirement has nearly 1.3 million public education and higher education employees and retirees participating in the system, according to its Web site.

The “Race to the bottom”

Saturday, October 31st, 2009

Excellent short quote in regards to “Competitive Devaluation” of Currencies world-wide.

The US devalues, which in essence devalues the Renminbi. This leaves the European exporters bearing the brunt of the dollar devaluation.  As their slice of the exporting pie begins to shrink, they naturally complain. Rumblings about competitive Euro devaluation begin to emerge. Even if a Euro is weakened, how long will it last? As long as global economic imbalances exist, the necessity for further dollar weakness will not go away. In other words, any weakness in the Euro will be met by further dollar devaluation.  The cycle of competitive devaluations, thus, will repeat.

What Ira is describing is the race to the fiat bottom. Global trading currencies are devalued to gain an exporting edge.  Devaluation without technological innovation serves to only rearrange the allocation rather than increase the size of the global economic pie.

What devaluation does accomplish is an erosion of purchasing power for its citizens.  When the world finally embraces this reality, an eventually that draws nearer with each passing day, gold will be sought and accepted for its ability to preserve purchasing power over time regardless of the carry trade or any other trading algorithm.

CIGA Eric

Scandalous: US Taxpayers again pay banker bonuses

Saturday, October 31st, 2009

The deal contributed to the more than $14 billion that over 18 months was handed to Goldman Sachs, whose former chairman, Stephen Friedman, was chairman of the board of directors of the New York Fed when the decision was made. Friedman, 71, resigned in May, days after it was disclosed by the Wall Street Journal that he had bought more than 50,000 shares of Goldman Sachs stock following the takeover of AIG. He declined to comment for this article.

New York Fed’s Secret Choice to Pay for Swaps Hits Taxpayers

By Richard Teitelbaum and Hugh Son

Oct. 27 (Bloomberg) — In the months leading up to the September 2008 collapse of giant insurer American International Group Inc., Elias Habayeb and his colleagues worked nights and weekends negotiating with banks that had bought $62 billion of credit-default swaps from AIG, according to a person who has worked with Habayeb.

Habayeb, 37, was chief financial officer for the AIG division that oversaw AIG Financial Products, the unit that had sold the swaps to the banks. One of his goals was to persuade the banks to accept discounts of as much as 40 cents on the dollar, according to people familiar with the matter.

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New Hyperinflation Article

Wednesday, October 28th, 2009

Just posted a new article on Hyperinflation here: http://www.rapidtrends.com/gold-hyperinflation-millions-billions-trillions-and-then/

An excerpt:

Most investors today are now familiar with the lessons of the Great Depression. But few are so sanguine about the lessons of the 20s and the Weimar Republic’s hyperinflation. History is full of examples of countries that failed to pay their debts, opting instead for hyperinflation to pay their bills. Inflation simply reduces the value of debt, hurting creditors and postpone the inevitable adjustment. History also shows that deficit spending and printing money is so addictive and politically expedient that governments rarely manage to reverse the downward spiral. Hyperinflation is a greater evil that wipes out savings and destroys more economies than depressions. Right now, hyperinflation is a greater risk than the 1930’s style depression that so many fear.

In the last century there were over 25 episodes of hyperinflation with most occurring in the half century. While many know of the Weimar Republic hyperinflation, few recall the French hyperinflation in the 1800s, nor of China’s from 1935 to 1949. Ukraine faced hyperinflation in 1994. And fast forward today, Zimbabwe is still experiencing hyperinflation.

In the last two decades, inflation was like the five cent cigar. The lack of inflation has allowed America’s politicians to spend more, promise more and the consequences have resulted in a series of bubbles. Easy money allowed homebuyers to buy homes they could ill afford leading to an inflation in property prices and of course the inevitable bust. But few people remember that America has experienced double digit inflation in 1910s, 1920s, 1940s, 1970s and even in the early 80s. It seems like only yesterday that we were on the verge of a collapse of the world’s financial system. A year on the steep rally that started in March has been fed by the identical recipe of cheap money and big doses of government spending that spawned previous bubbles.

Jewelry Demand to Return Despite Higher Gold Prices

Wednesday, October 28th, 2009
gold-india-jewelry

gold-india-jewelry

By JAMES CAMPBELL

SINGAPORE – Gold has confounded expectations by comfortably consolidating above $1,000 an ounce, and traditional buyers in the jewelry market are facing up to the reality that higher prices are here to stay.

It’s an attitude that could remove the last hurdle before gold can resume a rally that appears to have hit a roadblock for now.

“I would not advise anyone to short this market,” said Jeffrey Rhodes, CEO of INTL Commodities in Dubai. “Indian’s will be ready to buy if gold corrects. You might not see gold below $900 again,” said Mr. Rhodes.

Some gold investors have fretted about the decline in Indian gold bullion imports — India is the biggest importer of gold bullion — which are expected to fall below 300 tons in 2009, down from 396 tons in 2008 and more than 700 tons in 2007.

But despite the strength in gold prices this year, India’s gold sales during the festival period of Oct. 12-19 actually rose 5.7% from a year earlier to 56 tons despite near-record prices in rupee terms, the World Gold Council said Friday.

Some analysts say they expect gold prices to gradually march higher in 2010, regardless of periodic corrections. A rise in investment demand on inflation expectations and for currency diversification purposes has more than offset the weakness in the jewelry sector with overall gold demand in the first half at 1,744 tons, compared with 1,520 tons in the first half of 2008, according to Gold Fields Mineral Services data.

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Chairman of BHP: Massive demand from China in commodities – an era of unprecedented growth

Monday, October 26th, 2009

An era of unprecedented growth? Didnt we already just see that?

But China it appears is in fact de-coupling its economy from the US. Its no longer the case where China manufactures on the cheap, then the US buys it all.

China has shown it can in fact grow its domestic demand, as well as serve regional customers and balance its growth – reported last quarter at 8.9%.

This is an important topic, because for a great long time, say, the past 2 years, the average talking head claimed China could not diversify out of dollars for risk of ruining the value of their own holdings.

Ahh, the but the flip side of that of course is, what if the Yuan were used in trade? Kind of like what China is doing with all its major trading partners now?

No my friend, China is in fact using its reserve stockpile and buying every company and mineral right it can get its hands on.

Good for commodities, good for metals.

BHP’s Argus Sees ‘Unprecedented Growth’ for Minerals

By Rebecca Keenan

Oct. 22 (Bloomberg) — BHP Billiton Ltd., the world’s largest mining company, said demand for minerals is on the verge of “unprecedented growth” as China and India drive consumption.

“To support Asia’s increased demand for natural resources, we need to increase our resource production,” Don Argus, 71, chairman of BHP, said today in a speech at a lunch in Melbourne.

BHP yesterday reported record first-quarter production of iron ore as steel companies resume output at mills in China, Europe and the U.S. on signs of recovery in the global economy. Commodities, as measured by the Reuters/Jefferies CRB index of 19 commodities, have gained 24 percent this year.

“We stand at the threshold of an era of unprecedented growth due to demand generated by China and, in the future, India,” said Argus, who is scheduled to retire and will be succeeded by Jac Nasser as chairman in early 2010. “One of the statistics that gives me that confidence is steel consumption per capita or steel intensity.”

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Hyperinflation in the US? No way….ok maybe

Monday, October 26th, 2009

First, lets get an idea of what ‘hyperinflation’ is. This is basically when the public loses confidence in a type of currency, and decides it isnt worth the paper its printed on.

What people then tend to do is get rid of it as fast as possible, because its value plummets so fast that holding it will only leave you with a much less valuable piece of paper in a very short span of time.

In the height of the hyperinflation in Germany, you could sit down for a meal, and by the time the meal was over, the price had gone up.

In the recent hyperinflation in Zimbabwe, it cost as much as 3 billion Zimbabwe dollars to buy 3 eggs.

If you think this cant happen in the US, please study history a bit on this subject, it could mean the difference between a real struggle for survival and passing through the storm intact.

Gravity works everywhere, and so do the basic laws of economics – even in the US of A.

One method of storing your wealth during a hyper-inflationary period is to hold that wealth in gold and or silver.

At the height of the hyperinflation in Wiemar Germany, you could buy a downtown city block with all the commercial buildings on it for 20 ounces of gold.

Peter Bernholz (Professor Economics in Basel) studied the world’s 12 most important periods of hyperinflation and discovered that the tipping point occurs when deficits amounted to 40% of the expenditures.

For the United States we have arrived at exactly that point.  The deficit of $1.5 trillion amounts to 41.7% of the $3.6 trillion in expenses.

Has the US Reached The Hyperinflation Tipping Point?

Economist Peter Bernholz is an expert on the subject of national hyperinflations. He has studied all the major cases of hyperinflation since 1980. His conclusion: The tipping point occurs when a government’s deficit exceeds 40% of its expenditures.

Guess what? The U.S. will hit the 40% mark in 2009:

debt-expenditures

Hayman Advisors provided a good summary of Bernholz’s research in their October letter (via FS):

There have been 28 episodes of hyperinflation of national economies in the 20th century, with 20 occurring after 1980. Peter Bernholz (Professor Emeritus of Economics in the Center for Economics and Business (WWZ) at the University of Basel, Switzerland) has spent his career examining the intertwined worlds of politics and economics with special attention given to money. In his most recent book, Monetary Regimes and Inflation: History, Economic and Political Relationships, Bernholz analyzes the 12 largest episodes of hyperinflations – all of which were caused by financing huge public budget deficits through money creation. His conclusion: the tipping point for hyperinflation occurs when the government’s deficit exceed 40% of its expenditures.

US Buys its own bonds, and the world starts buying Chinese Bonds

Saturday, October 24th, 2009

The US is having to buy more and more of its own paper issued in amount dwarfing those of history, just to feed the massive US budget.

Sadly, in recent bond auctions the US has bought almost half of its own issuance.

QE is not a good sign. Bad for the dollar. Good for gold.

gold_vs_currency_chart

gold_vs_currency_chart

China’s first ‘overseas’ bond attracts strong demand

By Michael Kitchen, MarketWatch

LOS ANGELES (MarketWatch) — The Chinese Foreign Ministry said late Tuesday that its first-ever yuan-denominated bond sale outside mainland China was three times oversubscribed.

The sale in Hong Kong amounted to 6 billion yuan ($880 million) worth of two-, three- and five-year issues, the ministry said in a statement.

It attracted about 18 billion yuan worth of orders, including close to 150,000 applications from individual investors, it said.

Bank of Communications senior fixed-income dealer Midas Chu was quoted in a Dow Jones Newswires report as saying the “very satisfactory” results demonstrate yuan bonds’ popularity in Hong Kong.

“This would encourage [mainland] China to issue more on a regular basis in the future,” Chu was quoted as saying.

Chu said previous corporate yuan-bond issues were usually two-times subscribed or less, according to the report, though those sales aren’t necessarily comparable to this inaugural sovereign issue.

The coupons on the issues were 2.25% for the two-year, 2.7% for the three-year and 3.3% for the five-year, the ministry said. Secondary trading levels weren’t immediately available.

Original Article

Chinese Economy Dependant on US Customers: NOT

Saturday, October 24th, 2009

There has been an argument raging for a long time in regards to China being tied to the hip of the USA, and that their economy would ‘go down with the ship’ as well if the US did not come out of its recession/depression.

Well it seems that ‘decoupling’ isnt just a myth.

China’s economy is charging ahead with a 8.9% GDP growth for Q3.

I had a fellow not too long ago say this was nothing more than a bubble, and that they would face the same fate as the US and Britain…the one part that was missing from that position was the fact that the average consumer in the west is completely tapped out on credit, and so are their governments.

China is the complete opposite, with an average savings rate of 41% among Chinese citizens and a government whos coffers are flush with reserves.

A great excerpt from a recent article with Monty Guild:

CHINA, INDIA, AND BRAZIL

We can see China, India, and other countries growing, and the economic data is very supportive of this view.

We do not believe the same about the developed world.  Rather than inundate readers with every new data point about China’s growth, suffice it to say that their growth is fast and accelerating.  China just announced their third quarter GDP growth at 8.9 percent.  China’s foreign exchange reserves grew by $318 billion in the last six months.  Contrary to misinformed and naive reports, this came in spite of a big slowdown in Chinese exports.  The increase was due to the growth in foreign direct investment; foreign companies building plants, distribution facilities, retail outlets, and other enterprises in China.  The bears and naysayers on China’s economy are looking more incorrect with each passing day.

China’s economy has been moving from an export model five years ago to a hybrid model based on infrastructure, the consumer, and exports.  They have strengthened their relationships with markets within Asia and Europe, and are no longer as dependent upon the U.S. for exports as they once were.  The Chinese politburo is made of clearer thinking, and long-term goal driven engineers, and is very rational in its top down management and goal setting for the economy.  The banking system, although not perfect, is stronger than the U.S., European, and Japanese banking systems.  Capital is being allocated more wisely in China, and the country has huge trade balance of payments and current account surpluses.

India is also doing very well.  The national need for infrastructure is finally being addressed, and Indian entrepreneurs are running a strong economy.  India is still hampered by a socialistic bureaucracy that has always found a way to slow progress, as bureaucrats have used delay tactics and interference to make themselves more important and more wealthy.  Nonetheless, the country is showing strong growth and the middle class continues to expand rapidly.

Brazil is another success story.  Their banking system is operating very efficiently and the consumer is responding with increased demand for auto and home loans.  Much of this is due to the fact that Brazilian rates are now low enough for consumers to be able to borrow to buy a car or house.  Previously, periods of strong inflation and high interest rates had priced consumers out of the market for credit.  Today’s more reasonable rates and lower inflation have set the stage for a period of consumer demand and growth of the Brazilian middle class.

Foolish Peasants!

Thursday, October 22nd, 2009

Dont you know that giving huge tax-payer paid bonuses to financial execs is going to make you wealthy!?!

The arrogance of these people floors me.

The comment of this Goldman Sachs Chairman says “public should “tolerate the inequality as a way to achieve greater prosperity for all”.

Prosperity for all execs of financial firms perhaps would have been more accurate.

If you are good and mad, the best action you could funnel that into is protecting yourself and your family by grounding your finances in real tangible assets NOW…and not trusting these people to manage the paper economy. Their motives are clear.

Do you really need any more warning?

Public must learn to ‘tolerate the inequality’ of bonuses, says Goldman Sachs vice-chairman

Bankers’ soaring pay is an investment in the economy, Lord Griffiths tells public meeting on City morality

One of the City’s leading figures has suggested that inequality created by bankers’ huge salaries is a price worth paying for greater prosperity.

In remarks that will fuel the row around excessive pay, Lord Griffiths, vice-chairman of Goldman Sachs International and a former adviser to Margaret Thatcher, said banks should not be ashamed of rewarding their staff.

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Sprott: US Gov Dead Man Walking

Wednesday, October 21st, 2009

I have been talking for a time about the US Gov buying its own debt.

I do not think they will stop with the QE. They cant.

They cant because they will not be able to keep the lights on for one, but also because they cant allow a major financial institution to fail or we have global dominoes and a collapse of the financial system.

What does that mean? Hyperinflation at some point.

I sure hope you have taken measures to protect yourself. I have and sleep well at night.

Hedge manager Sprott sees trouble when easing ends

US government is new “dead man walking”, investor says
By Alistair Barr, MarketWatch

NEW YORK (MarketWatch) – When so-called quantitative easing by central banks ends, the world economy may slip back into trouble, Canadian hedge fund manager Eric Sprott warned on Tuesday.

Toronto-based Sprott called Citigroup, Fannie Mae, Freddie Mac, and General Motors “dead men walking” in late 2007. On Tuesday, he said the U.S. government is the new dead man walking, partly because it may struggle to keep borrowing enough money if the Federal Reserve stops buying Treasury bonds.

Sprott’s Canadian hedge fund, Sprott Hedge Fund LP, is up more than 400% since inception in 2000 as it rode a surge in gold prices and shares of gold miners and other raw materials companies.

Bank bailouts and other dramatic efforts by central banks have stopped the world “going into the abyss,” Sprott said during a presentation at the Value Investing Congress in New York.

The “granddaddy” of all those bailout efforts is quantitative easing, in which central banks in the U.S. and the U.K. especially buy government bonds to keep interest rates low, Sprott said.

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Bank of England Governer: Regulation can not stop bank failures

Wednesday, October 21st, 2009

Obviously.

BOE King: Delusion To Think Regulation Can Stop Bank Failure

By Natasha Brereton

LONDON -(Dow Jones)- Bank of England Governor Mervyn King said Tuesday that heightened regulation can’t prevent the financial speculation that results in bank failures, and called for a serious review of the structure of the banking sector whose goal would be to eliminate institutions that are too important to fail.

In a speech to business people in Scotland, King championed the idea of separating banks’ utility functions as a means of minimizing the government’s effective subsidy of risky activities and reducing the U.K.’s reliance on a small number of very big banks.

Turning briefly to the economy, he noted that there was likely to be “significant” fiscal tightening in the years ahead, and stressed the need to boost broad money growth, but gave no clear indication on whether he would favor extending the bank’s bond buying policy.

“The sheer creative imagination of the financial sector to think up new ways of taking risk will in the end, I believe, force us to confront the ‘too important to fail’ question,” King said. “The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion.”

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More Inflation Adjusted Gold Targets

Wednesday, October 21st, 2009

Certainly bullish talk these days regarding gold.

I am not being hypocritical, I fully acknowledge that yes I talk about gold, and myself along with not to many others were lonely voices in the wild.

What struck me about this article not all the bullish talk re gold, but the contrarian viewpoint is John Nadler – the mouth-piece of the gold bashing crowd.

THAT is concerning, and maybe it is time for a little pullback (buying opp).

Gold at $2,000 Becomes Inflation-Adjusted Bullseye for ‘80 High

By Pham-Duy Nguyen

Oct. 19 (Bloomberg) — Gold’s rally to a record means prices are still 53 percent below the 1980 inflation-adjusted peak.

While gold rose 19 percent this year to $1,072 an ounce on Oct. 14, consumer prices almost tripled in the past three decades, eroding the metal’s value. Bullion hasn’t kept pace with the cost of bread, fuel or medical care. In 1980, gold hit a then-record $873 an ounce. In today’s dollars, that would be $2,287, according to the U.S. Labor Department’s inflation calculator.

Record government debt and interest rates close to zero percent are pushing gold higher for a ninth straight year, and options show investors expect the rally to continue. When prices reached all-time highs, the contract with the most open interest was the December call to buy the metal at $1,200. The contract to purchase at $1,500 an ounce was the third biggest.

“Gold is not at any peak,” said Martin Murenbeeld, the chief economist at Toronto-based DundeeWealth Inc., which manages $58.5 billion in mutual funds and brokerage accounts. “The world’s money supply has increased and gold hasn’t kept pace,” he said. “We’re now in a period where gold is catching up.”

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CME To Allow Gold As Collateral For All Exchange Products

Monday, October 19th, 2009

And some people wonder if gold is money?

LONDON -(Dow Jones)- U.S.-based clearing house CME Group Inc. (CME) will allow physical gold to be used as collateral for margin requirements on all exchange products, a spokesman said Monday.

The new global policy is effective Oct. 19 in accordance with a member’s notice issued late Friday, said spokesman Jeremy Hughes in London.

Clearing member firms will be allowed to post up to a maximum of $200 million worth of gold as collateral to cover performance bond, or margin, requirements, Hughes said.

The policy was a byproduct of CME’s recent launch of clearing services for over-the-counter London gold spot and forward contracts, he said.

“Many of the [trading] houses hold quite a lot of physical gold and would welcome using it more efficiently,” he said.

The gold will be held at J.P. Morgan Chase & Co.’s (JPM) bank in London.

Sumitomo Mistui Chief Strategist: US Dollar will cease to be the world reserve currency

Monday, October 19th, 2009

When you start to see long term supporters of the USD making statements like this, you know this isnt just a drill.

The inverse trade to the USD is gold.

Dollar to Hit 50 Yen, Cease as Reserve, Sumitomo Says

By Shigeki Nozawa

Oct. 15 (Bloomberg) — The dollar may drop to 50 yen next year and eventually lose its role as the global reserve currency, Sumitomo Mitsui Banking Corp.’s chief strategist said, citing trading patterns and a likely double dip in the U.S. economy.

“The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger,” said Daisuke Uno at Sumitomo Mitsui, a unit of Japan’s third- biggest bank. “The dollar’s fall won’t stop until there’s a change to the global currency system.”

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Dollar Dead-Pool

Thursday, October 15th, 2009

Ut-oh…this cant be good. (Unless you own something that does well when to dollar goes down)

Russia ready to abandon dollar in oil, gas trade with China

Putin in Talks with China

Putin in Talks with China

BEIJING, October 14 (RIA Novosti) – Russia is ready to consider using the Russian and Chinese national currencies instead of the dollar in bilateral oil and gas dealings, Prime Minister Vladimir Putin said on Wednesday.

The premier, currently on a visit to Beijing, said a final decision on the issue can only be made after a thorough expert analysis.

“Yesterday, energy companies, in particular Gazprom, raised the question of using the national currency. We are ready to examine the possibility of selling energy resources for rubles, but our Chinese partners need rubles for that. We are also ready to sell for yuans,” Putin said.

He stressed that “there should be a balance here.”

On Tuesday, Russia and China agreed terms for Russian gas deliveries at a level of up to 70 billion cubic meters a year. China also imports oil from Russia.

The Russian prime minister said the issue would be addressed among others at a meeting of Shanghai Cooperation Organization (SCO) finance ministers, who are to convene before the end of the year in Kazakhstan.

Britain’s Independent newspaper reported last Tuesday that Russian officials had held “secret meetings” with Arab states, China and France on ending the use of the U.S. dollar in international oil trade.

The countries are reportedly seeking to switch from the dollar to a basket of currencies including the euro, Japanese yen, Chinese yuan, gold, and a new unified currency of leading Arab oil producing countries.

The Independent said the meetings have been confirmed by Chinese and Arab banking sources.

Original Article

DOW passes 10,000 – Talking Heads Rejoice – Dont Get too Excited

Thursday, October 15th, 2009

The DOW moves back above 10,000…..

Problem is that its measured in dollars…so if you factor in the rate of money creation and assume that affects buying power you get a DOW thats worth about 5000 in buying power.

When measured against gold however, it looks more like this:

DOW / GOLD Ratio Chart - 10 Yr

DOW / GOLD Ratio Chart - 10 Yr

That tiny little uptick is what all the Wall St cheerleaders are excited about.

If history repeats and the DOW and Gold meet at a 1:1 ratio at the top of golds run up, and the DOW keeps rising (due to inflated dollars more than anything else) , then where is that meeting point going to be? Maybe these guys calling for a 20,000 DOW are right…but what also does that mean for gold? What also would that mean for the buying power of the dollar?

To me that looks like a buying opportunity in a major trend.

Gold Passes $1070 in Asian Market early hours – Dollar sinks below 76.00

Wednesday, October 14th, 2009

The dollar has dropped under key support levels.

Japanese Yen, the currency of choice for the carry trade for decades has been supplanted with a new favorite: the USD.

Dollar Dead-pool means gold will continue to rise

Actions speaks louder than words, and it is clear by action that few people understand the ramifications of whats happening

Interestingly, the few who do for the most part are already wealthy – I dont think this is a coincidence – they do the opposite of the masses – are you doing the opposite of the masses, or are you following the great herd of sheep to the slaughter?

Carry Trade New Favorite: USD

Carry Trade New Favorite: USD

International confidence in the US dollar is waning at an accelerating pace

Tuesday, October 13th, 2009

Its amazing to see how far the dollar index has fallen in just a few short months.

Dollar Reaches Breaking Point as Banks Shift Reserves

Oct. 12 (Bloomberg) — Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.

Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.

World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.

“Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.”

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