Alex’s Notes: I have been combing articles looking for a decent analysis of the recent price action in precious metals. Ted Butler, who is perhaps the most knowledgeable person on the planet in terms of the silver market, has posted a very succinct article on this.
I of course have not changed my long views on any of this, the long bull trends here will be up for commodities, energy, precious metals, and a death spiral for the USD and US Equities.
All In By: Theodore Butler and Israel Friedman I just knew I had used the above title previously. Since I do try to avoid it, I had to look it up. Sure enough, I had, on May 24, 2005. I don’t re-read my old articles normally, but I made an exception in this case, since I‘m reusing the title.It was a brief article, mainly centered on the bullish market structure in the Commitment of Traders Report (COT) on silver. I also commented on the particularly bullish structure in gold and copper and the bearish structure in the dollar. Since I usually confine my remarks to silver and gold, I was naturally curious to see if the old article was on the mark. Since silver was $7, gold $400, copper $1.30, and the Euro $1.20 at that time, I was relieved to see no one would have been misled. To be sure, there were some subsequent short-term ups and downs, as the dealers maneuvered the tech funds in and out of the market, but the COTs were unusually reliable then.While past results and analysis are never a guarantee of the future, the reason for me recycling the old title was precisely for the same reason I had when I first used it three years ago, namely, to convey that it was time to load the boat with silver. This is another unique opportunity.
Almost all of my articles over the past several months have cautioned about the possibility of a sharp sell-off, due to the historically large concentrated net short position of the largest traders in COMEX silver and gold futures. I wasn’t sure we would get a sharp sell-off or when it might come, but if we did get one, I was certain as to its cause. The 48-hour, $4 silver sell-off and $100 gold sell-off occurred for one reason and one reason only - the big shorts yanked the rug out from under the tech fund longs. Again.
Just for the benefit of newer readers (as longtime readers already know this), the tech funds are large pools of investment money that buy and sell futures contracts on every commodity based solely upon price, or technical, signals. They buy on the way up and sell on the way down, as moving averages are penetrated in either direction. They have no interest in the commodity itself, nor its value or supply/demand fundamentals, just the price action. In other words, the tech funds buy and sell many tens of millions of ounces of silver, for example, with no concern about the metal itself. All the tech funds care about is price movement and trying to capture as much of a price trend as they can. (I am not offering a value judgment of their behavior, just an explanation).
The dealers, or large commercial traders (mostly big banks), also know how the tech funds operate and always take the opposite side of whatever the tech funds buy or sell as counterparties. In my opinion, the dealers rig the market by colluding with one another against the tech funds. They do this by withholding their collective bids and offers at opportune times, namely, when they know the tech funds are about to react to a major moving average price signal. This is precisely what occurred in the 48-hour price massacre in gold and silver.
This collusion among the dealers against the tech funds is as illegal as the day is long. It has the effect of setting the price of silver (and other commodities) without regard to real world fundamentals. This is why I have petitioned the CFTC and the exchange regulators for almost 25 years. But I’ll save that story for another day. Today there are more pressing issues.
The sharp sell-off has resulted, in my opinion, in the cleansing out, or removal, of most, if not all, of the technical fund leveraged long positions in silver and gold. I think the amounts come to 20,000 contracts (100 million ounces in silver), and 75,000 contracts in gold COMEX futures (7.5 million ounces). This is my analysis, but we will have to wait until this week’s COT Report is issued to verify the actual figures.
The important thing is that, if the tech funds have, in fact, been largely liquidated by the dealers, then the reason for a potential sharp sell-off has also been eliminated. If one were cautious about being fully-invested in silver because of the possibility of a sharp tech fund sell-off, there is little reason to maintain such caution. Certainly, if anyone held off buying silver because of anything I had written about a potential sell-off, he or she should hold off no longer. Lower prices from here are not to be feared, as they will only strengthen the bullish case.
In truth, it was somewhat easier to analyze the COTs years ago, as the buying point set-ups took weeks, if not months, to develop. This permitted an analyst the luxury of time in deciphering the state of the market. But 24-hour electronic trading on the COMEX has changed all that. Since there has there been no change in the COMEX’s dominance on the day to day pricing of silver and gold, the round the clock trading capability has drastically shortened the time necessary for the dealers to ambush the tech funds. Never have they done it in as short a time span as what they just completed.
But it is not just the suspected clean-out of the tech funds that suggests to me that caution about buying silver should now be tossed to wind. There are other issues that are hard to ignore. I get the strong sense that everything may be falling into place for the real upside explosion in silver. In fact, I think the clean-out of the tech funds, which was compressed into such a short time frame, is directly related to those other issues. It’s why the sell-off took place.
One of my long-term tenets was that there would be an inevitable shortage of silver at some point. I know that sounded preposterous to many at the time I made such statements. Further, since the big dealer shorts were very much involved in the day to day world distribution and supply business, they would necessarily have some advance inkling of when the silver shortage would commence. I then asked myself what I would do, if I were them, when I got the signal that the shortage had arrived?
The only plausible answer was that, in that event, they would position themselves in the most effective and efficient way as possible for the certain coming price rise. That would mean one thing - orchestrating a large price decline on the COMEX. That would generate as much tech fund selling as possible, and enable the dealers to buy back as many contracts as they could and covers as much of their short position as possible. I think that is what has just occurred.
As I have written recently, there are unusual patterns that strongly suggest that the silver shortage may be at hand. The delays of silver deliveries into the big silver ETF, SLV and the inability of the US Mint to keep up the sudden and persistent demand for Silver Eagles are two important and visible clues. Currently, there are many reports of widespread tightness in many wholesale and retail silver outfits.
The investment rush for many forms of retail silver and the subsequent depletion of local dealer inventory comes as a result of the initial unprecedented demand for Silver Eagles. The unexpected demand for Silver Eagles, starting in November. It kicked off a rush to buy other retail forms of investment silver, such as rounds, small bars and bags of U.S. silver coins.
Since the Mint could not supply sufficient quantities of Silver Eagles to the investing public, many eager buyers took what forms of silver were available, rather than wait for new Eagles to be produced and delivered later. There should be no doubt that my good friend and mentor, Izzy, kicked off the whole shebang with his article extolling people to buy Silver Eagles. (A new article by him appears at the end of this piece).
What does a shortage in silver mean? In a word, everything. If the initial clues of a silver shortage get transformed to the industrial silver users and large investors, in terms of increased physical demand for 1000-ounce bars, the industry standard, then say good-bye (and good-riddance) to the silver manipulation. The big dealers can sell unlimited quantities of manipulative paper silver contracts created from thin air, but they can’t sell real 1000 oz bars unless they have them. If they don’t have the real goods and there is a surge in demand for real bars, the jig is up. That’s why I encourage you to insist on securing the serial numbers of every 1000 oz bar held in storage for you
The fact that there is unprecedented demand for silver at precisely the same time as a sharp and sudden sell-off in the price, should confirm to even the most obstinate skeptic the existence of a silver manipulation. So clear is this evidence of manipulation, that there is no longer any credible public denial of it. Now only the CFTC and the NYMEX contest its existence, as they must at all costs.
Finally, an often repeated message for gold-only investors. If you own no (or little) silver, and have insufficient capital with which to invest in silver currently, please switch some gold into silver. You must clearly see the evidence of a growing silver shortage. The clues and reports of shortage are, most emphatically, silver specific. There is no such shortage in gold, nor will there ever be, in my opinion. That’s because gold is not industrially consumed to the extent of silver. That does not mean gold can’t soar in price. In fact, I hope it does, as it will underscore the value of silver. But your common sense should tell you that a precious metal in shortage must climb more sharply in relative value, compared to a precious metal not in a shortage, especially when the shortage-prone metal is so undervalued to begin with.
No one reading these words has any hands-on experience in dealing with a potential shortage of silver. That’s because the world has never experienced a shortage of silver. There is nothing in the specific history of silver to guide us to expected price behavior in a shortage. The closest examples we can draw upon involves the price action of essential commodities that are rationed by natural disasters, like ice or gasoline when a hurricane knocks out power for a week or two. With such a potential silver shortage possibly at hand, coupled with the recent intentional sell-off on the COMEX, it is time to be all in.
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The following is an excerpt from an article written by Clyde C. Harrison of Brookshire Raw Materials. The reason I am sending this out, is because I have been yammering on about these trends for a while now, and Mr. Harrison has done an incredible job of stating more simply and eloquently what I have been blathering on about, but not quite so eloquently.
Summary of this of course is: The future is commodities, energy, and GOLD and SILVER. I just saw a Youtube of Ron Paul on CNBC saying we should abolish the Fed and shift back to a gold standard. I am not sure how realistic abolishing the Fed really is, although I do kind of like the idea. Shifting to a gold standard, well now we are talking. Do you realize that if you take the current M3 money supply, and divide it into the number of reported gold ounces the US Treasury owns, that it would make the price of gold $51,470 per ounce?
The worlds economies and societies have shifted back and forth from Fiat money to real money (gold and silver) in a cycle that repeats itself through history over and over, with no exceptions. The world is currently realizing (again), that Fiat isn’t all that wonderful. Whichever government shifts to a gold standard first, will end up with the worlds next reserve currency. Totally my opinion.
Here is an excerpt, my own emphasis added in bolds.
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The Financial Center of Gravity is Shifting
Don’t just look at the stars - be one
Clyde Harrison
Mar 24, 2008
Excerpt:
As the US moved from capitalism to socialism, many third world countries were moving toward capitalism.
Today, 1 billion people in the world, G-7, use two thirds of the world’s raw materials. Over 5 billion use the other third. Many are pursuing capitalism; China, India, Russia, Brazil and Vietnam. In China, to be rich is glorious. In the US, if you’re rich, you’re attacked. In China there is no capital gains tax and no corporate tax. Money and talent go where it’s treated well.
Today, it’s easier and cheaper to start and operate a business in China than in the land of the free, where we are free to pay tremendous federal, state and local taxes, free except for the mountains of regulations; like who you employ, how you pay them, how you operate your business all the way to what you do in your own home with your own children. Regulations are destroying jobs and creativity.
Is it any wonder that China is growing at 12% and America at 2%?
In my opinion, the raw material market, energy, agricultural and base metals are only in the second inning of a nine inning bull market.
30 years of restrained and neglected natural resource supply is being overwhelmed by demand. The lead times to create more supply are measured in years. Three billion people in emerging nations have discovered capitalism.
Capitalism is easy to understand, it’s nature with a balance sheet.
The difference is in nature. If you fail, you are eaten. Under capitalism you go broke. I like capitalism better.
Today, China is booming. They have declared the national bird to be the construction crane. In the last five years China went from exporting oil to the second largest importer in the world. The emerging market countries will go from walking, to bikes, to motorcycles, and to autos. They will need oil and gas, chemicals, forest products and metals. At $1.00 per hour they are deflating manufacturing costs, but as they become more successful, they will throw away their bicycles and buy motorcycles and eat better, increasing the demand for raw materials.
China and India are transforming their economies from poor agrarian nations to the newest industrial powers, replete with heavy industries, mass transportation and higher education. Rising from these giant new economies will come millions of new consumers, the very people who are already straining the natural resources of the earth.
In 1900, the US started to industrialize. We were using one barrel of oil per person per year. By 1970, we were using 27 barrels per person. In 1950, Japan started to industrialize, they were using 1 barrel per person. By 1970, they were using 17. In 1965, South Korea started to industrialize. They were using one barrel per person per year. By 2000 they were using 17. Today, China uses 1.3 barrel per person per year and India uses .7.
In 1950, Japan per capita income was 18% of the US, today it’s 96%. In 1965, South Korea’s per capita income was 16% of the US, today it’s 56%. India and China have 2.5 billion consumers, 9 times the US. The US uses 25% of the world’s energy, China and India use 8%. India and China have 280 people per car. The US has 2 people per car. Last year, China produced and sold the same number of autos as the US. Eighty percent were purchased with cash.
Real incomes are just beginning to rise to levels that create large demands for consumer goods. Between 1950 and 1970, Japan’s urban population increased 70%. Personal consumption increased 600%.
What is occurring today in China, which contains just over 1/3 of the citizens of the emerging nations: China currently is 40% urban, 60% rural. The US is 97% urban and 3% rural. China has 20% of the world’s population and 7% of the world’s land. China’s grain imports will grow from 14 million tones today to 57 million tones in 2020.
China was the largest economy during 27 of the past 30 centuries. China currently consumes 47% iron ore, 32% aluminum and 25% of the copper. China currently consumes 6 million barrels of oil per day. The US consumes 25 million barrels per day. China has almost five times the population of the US and will some day consume more oil than the US.
To date most of China’s growth has been on the east coast. 800 million Chinese live in rural China today and 40 million a year are moving to the city for the better life.
China wants to halt this migration by bringing the better life to the whole country. To accelerate this, they have a number of infrastructure construction projects in effect. All the projects are scheduled to be completed in 5 years.
$200 billion dollars for 500 power plants. They are currently completing 4 power plants per day.
$200 billion dollars for railroads to the west.
$30 billion for a 300 mph bullet trail between Shanghai and Beijing.
$65 billion for 97 new air ports.
$40 billion for subways in 15 major cities.
$300 billion for 10,000 miles of new expressways.
The $900 billion in construction in China will be paid for by US taxpayers, not out of their kindness to strangers, but in interest on the money we have borrowed from China. Now add Egypt, Russia, Brazil, Vietnam and you begin to understand why I started a raw materials fund.
The mergers of the giant producers today do not create one more ounce of supply. It won’t be long and they will be merging the junior mining companies. Years into this bull market, and still the cheapest place to drill for oil and mine metals is the stock exchange.
Today, 1 billion people consume two thirds of the world’s raw materials. 5.6 billion people consume the other third and they are becoming more successful. The industrial revolution involved 300 million people. The emerging nation revolution involves 3 billion.
There is no need to connect the dots, they over lap.
Lead times to create raw materials are measured in years. In Canada $80 billion in infrastructure has been committed to production of the tar sands. The goal is to produce 3 million barrels a day by 2015. At $85, oil is a bargain liquid. It costs 10% less than bottled water, it’s one third the cost of milk, one fifth the cost of beer and only 2% of the cost of Jack Daniels. TaTa, the Indian car company has produced a $2,500 automobile. Hundreds of thousands will be sold in the 3rd world. That demand will increase the price of a gallon of gas one dollar in the next three years because of increased demand.
Phelps Dodge is opening a new copper mine. It took 12 years of paper work to receive federal approval.
In China:
Company: “We found copper.”
Government: “Start digging. What can we do to help?”
Company: “We need a road.”
Government: “You got it.”
China’s growing at 12%, the US at 2%. Money goes where it’s treated well.
Currently oil companies who search for oil at great risk earn 9 cents per gallon. The US Government, at no risk, takes 51 cents per gallon.
The political systems of G-7 are at a great disadvantage, stuck with unfunded liabilities and debt. Current politicians are unwilling to cut spending growth. The Chinese have a 30 percent savings rate and 1.4 trillion US dollars to purchase real assets.
Demand for raw materials has increased. In many cases, the capacity to produce raw materials has declined dramatically in the last 20 years. Tops and bottoms are creatures of extreme. Markets rise above all expectation and then go higher and then fall further than common sense suggests. The most desirable investments for the future might not be in cyber space but back to the basics.
I believe we are only at the start of the largest bull market in history for raw materials.
By the end of this bull market, there will be a bounty on caribou, you will be able to see an oil rig from every beach and they will be digging a coal mine in Al Gore’s yard.
As you climb the ladder of financial success, check to make sure it’s leaning on the right wall. I believe raw materials will be one of the best investments for the next 10 to 15 years.
Clyde C. Harrison
Brookshire Raw Materials
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Recent Letter from Jason Hommel regarding silver shortage and prices:
Silver Shortage gets Worse, Price Drops Again!
(If you don’t hold it, you don’t own it)
Silver Stock Report
by Jason Hommel, March 20, 2008
Three more major silver dealers are reported to be out of silver today: The U.S. Mint, Kitco, and Monex. This, on top of the major dealers yesterday, Amark, Perth Mint, CNI Numismatics, and APMEX, all reported sold out. Further, nearly all of Canada is reported to be out of silver, from Vancouver to Toronto.
This is unprecedented, and is a perfect case of market manipulation in the paper market at COMEX and other futures exchanges to see silver prices continue to drop down to below $17/oz. today. Paper promises can be created endlessly, but real silver cannot.
This is NOT a case of the dealers getting spooked, and selling out to the refiners just in time, at peak prices. This is a case of the public buying up the stock at coin shops across the world ever since gold hit $1000/oz.. That event finally sparked a little of the public’s buying of silver and gold. Thus, the typical coin shop flow of silver to the refiners just stopped in the last few weeks, and especially the last two days.
This is NOT a case of the public creating a top with ‘everyone’ in silver, because nobody’s in silver yet. In 2006, only $1 billion was spent on investment silver, which is 0.007% of the $13.5 trillion of money in the banks. As I have long reported, the silver market is so small, there is no room for new investor demand, not even 0.1% of money could be spent on silver, because that would be $13 billion, which would push silver prices to $200/oz., and we are seeing only the tiniest beginnings of that.
$13 billion would be almost enough to buy all the silver produced by the mines in one year, which would leave nothing for industry. It would essentially double demand, but supply would remain the same.
Furthermore, this is not a top because the public continues to get to the coin shops, and is now getting on waiting lists for silver. The public is not yet in, so how can the price drop?
This is a case of price fixing and manipulation, like communism. Sausage is reported to cost 1 link per ruble, but there is no sausage. Silver price is quoted, but there is little to no silver.
Shortages are evidence of price fixing. Price fixing results in shortages. They are price fixing silver at a below market price over on the paper exchanges in New York and around the world.
How long can it go on? Until people stop trusting the paper exchanges, which could be after they default and fail to deliver silver. Or we could see a severe backwardation, as people refuse to trust and buy futures contracts, which would thus sell at a discount to real silver. Then, the spot price will really go up, maybe about double or more very quickly.
Regarding Monex and Kitco:
Monex has a shortage of 100 oz bars and silver eagles. They say that they are 5-7 days behind on orders for 100 oz bars and at least 10 days behind on silver eagle orders.
“This message has been placed on KITCO’s buying board in large red letters. TT
IMPORTANT: Due to the volatility of the market, we are experiencing a significant increase in the volume of products that are being sold to Kitco. Although Kitco and HSBC Bank are working hard to stay on top of this, you may experience a delay in your package being processed. We apologize for any inconvenience this may cause, and appreciate your patience and understanding.”
bulliondirect says:
High Activity Market Alert
The precious metals industry is experiencing a substantial surge in activity which may increase the possibility of logistical delays; including customer service response time and product processing (incoming and outgoing). Our goal is to keep our prices competitive while still delivering an exceptional transaction experience.
I now have 4 pages of reports that I posted to my member’s forum, from people saying that dealers around the world are out. Here is a summary of their comments:
Apmex out.
CNI out.
One in the UK.
One in New Port Richy, Florida.
Ebay is selling silver over spot.
Toronto out except overpriced Eagles and Maples.
Kitco in Montreal is out of Silver Maples.
Local shop in Victoria BC is out of all bullion.
Mexico City’s “Consultoria casa de cambio” is out of bullion.
There is no silver for sale in eastern Canada.
Perth Mint is out.
A world class gold and silver bullion dealer in Dubai, Lakhoo Jewelry, is almost out.
Most Utah coin shops say there is a critical shortage of silver available for purchase in Utah.
(Johnson Matthey, the largest refiner, is in Utah!)
www.argentarius.de , there where 637 Mexican Libertad still left. Now, two hours later: nothing.
We could not find silver in canada from two days now.
Conejo Coin and Stamp run out of 100 oz silver bars too.
I just cleaned out the last 25 oz. of silver at my local coin shop.
scotia bank told me that they have no silver for about 2 days now.
Camino Coin of Burlingame, CA says, There seems to be a silver shortage.
In the Detroit, Michigan area, very few coin shops have any, I got the last 2 bars at one shop.
Bulliondirect having trouble mostly with Silver Eagles and Canadian Silver Maple Leafs.
The US Mint has said they are out of silver eagles - at least for a few weeks.
Portland, OR, Alder Gold Exchange., just a few bars, bought them out.
The dealers in Vancouver are offering 100 oz bars at $1875 preorder, but we wont get them for months.
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Paul Mladjenovic, author of Precious Metals for Dummies, said to me today, the following about the current price manipulation and shortage of real silver:
Outside of Oil, there is no other commodity with more diversified uses. Silver will probably hit $50/oz. within 3 years, and exceed its all time high on an inflation adjusted basis ($150-$350/oz.) and hit tripple digits by the early part of the next decade.
Everything has a natural and artifical price, and an artificial low price stimulates demand, and creates shortages, but the false appearance of plenty, which will blindside those in the paper markets.
Artifical intervention only works in the short term, whereas natural supply and demand forces always triumph in the long term.
==============
I want you to be able to buy on this dip, and not be discouraged by sold out coin shops. This is why I asked people to report to me who had silver in quantity, ready to sell.
“If you don’t hold it, you don’t own it” (And can’t sell it!)
Yesterday, Robert Mish was slammed by my mention of his shop in my report. Next time, he says he can only handle orders for $10,000 or more at one time.
Here are a few more sources:
bulliondirect.com has silver available, up to 400 x 100 oz. bars.
Bulliondirect is like the ebay for large silver orders.
They do have 100 x 100 oz. bars available, in several categories.
But they now post a warning:
High Activity Market Alert
The precious metals industry is experiencing a substantial surge in activity which may increase the possibility of logistical delays; including customer service response time and product processing (incoming and outgoing). Our goal is to keep our prices competitive while still delivering an exceptional transaction experience.
===============
FideliTrade Incorporated in Wilmington, Delaware is reported to have silver inventory available for immediate delivery.
http://www.fidelitrade.com/
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http://www.delawaredepository.com/
is an NYMEX/COMEX and CBOT licensed and CFTC approved depository for silver.
===============
Mike of Gulfcoast Coin and Jewelry (239) 939-5636, In Florida
1 800 465 3909
www.gulfcoastcoin.com
Keeps a large inventory of bullion and rare coins. 90% bags, .999 silver, is a market maker.
Sells gold at 1% over costs, silver at 3%.
Self-reported that he has 50 bags of 90% now. — but others report he “drop ships” from other sources.
===============
Jason, I was forwarded your blog regarding silver. I’m a major precious metal dealer and have sold 25,000 yesterday. I still have plenty left. We have been selling plenty of pure silver dealer to dealer at spot + .50 cents.
Thanks,
Don Herres
Dollartowne
Bellbrook, OH
937-848-6231
I was unable to confirm.
===============
It was reported to me that:
In Austria, Europe, there are plenty of sources where you can get massive amounts of silver:
www.oegussa.at - this is the largest smelter in Austria, with an office for individual, private party walk-in customers in Vienna and they have lots of silver bullion available all the time. Silver bullion is not too interesting for Austrian citizens, because they have to pay V.A.T. on silver bullion purchases - VAT is the European equivalent of sales tax.
But if any American or other non-EU-citizen purchases silver bullion and keeps the receipt, they get the VAT back at the airport when leaving the country.
You can also purchase lots of silver at Austrian banks and coin shops - no shortage here! And if you go for coins, denominated in any current currency and not bullion, there is no VAT to pay for anyone. The Austrian Mint is currently offering the Silver Philharmonic coin, weight is not metric, but in troy ounces, the coin is denominated in Euros, so no VAT to pay - and you can purchase tons of it! They distribute them through all Austrian banks.
Yes, metric tons of these coins are available now. .
Here is the specific page at their website: www.austrian-mint.at/silberphil?l=en
Sources sent by the owner of:
www.alchemianova.com
Jason Hommel
Alex’s Notes: Time for another bout of bad news, sorry I am the bearer of the tale. Don’t feel too bad though, as wealth is never destroyed it only changes hands.
Bear Stearns gets saved from the headsmans axe, barely. The Fed and JP Morgan worked out an emergency deal over the weekend so that we would not see the markets come crashing down on Monday at the opening bell. Late Sunday night they came to a deal, the JP Morgan would buy Bear Stearns for $2/share and the Fed would throw in $30 Billion to JP Morgan to sweeten the deal. Talk about a fire sale. To think Bear Stearns was trading for over $150 a share not too long ago.
This of course, was not lost on Asia, as gold catapulted up to $1032 per ounce on their exchanges, only to be pushed down to a ‘less panicked’ level by ‘those who wish to prevent panic’ before our markets opened. These guys are in total damage control mode now, and the scary part really is that Bear Stearns is a relatively small player in the world of financial institutions, if its potential failure could spark such panic, what is going to happen when Lehman Bros, Merril, and other players go through similar issues? We have not seen the rest of this iceberg yet, there is still at least $350 billion of un-disclosed losses to be uncovered from derivative and sub-prime toxic garbage exposure, when the skeletons come out of the closet how will the markets react?
Whats worse is that the Fed has now demonstrated it will not let these institutions fail. We are looking at policies that have caused hyperinflation in other economies throughout history. We are going to see increasing gas, food, and other cost of living price increases with a steady crescendo as the markets absorb the massive liquidity injections we are now seeing. Get ready for Zimbabwe lifestyles people, because it is really hitting the fan.
Global inflation is still humming un-abated, and we will no doubt see competitive currency devaluations in time. Markets overall for equities are going to get pretty ugly, very fast, if you have alot of exposure to them you should serious take a look at your alternatives.
Again, the time is now to move to where you are safe, as this is only the beginning. Gold, silver, commodities and energy are the watchwords for the next decade. My personal portfolio is showing gains of over 258% in 5 months on those asset classes alone.
On to the Market Snapshot:
———————————-
Wall Street fears for next Great Depression
By Margareta Pagano, Business Editor
Sunday, 16 March 2008
Wall Street is bracing itself for another week of roller-coaster trading after more than $300bn (£150bn) was wiped off the US equity markets on Friday following the emergency funding package put together by the Federal Reserve and JPMorgan Chase to rescue Bear Stearns.
One UK economist warned that the world is now close to a 1930s-like Great Depression, while New York traders said they had never experienced such fear. The Fed’s emergency funding procedure was first used in the Depression and has rarely been used since.
A Goldman Sachs trader in New York said: “Everyone is in a total state of shock, aghast at what is happening. No one wants to talk, let alone deal; we’re just standing by waiting. Everyone is nervous about what is going to emerge when trading starts tomorrow.”
In the UK, Michael Taylor, a senior market strategist at Lombard, the economics consultancy, said on Friday night: “We have all been talking about a 1970s-style crisis but as each day goes by this looks more like the 1930s. No one has any clue as to where this is going to end; it’s a self-feeding disaster.” Mr Taylor, who had been relatively optimistic, has turned bearish: “It really does look as though the UK is now heading for a recession. The credit-crunch means that even if the Bank of England cuts rates again, the banks are in such a bad way they are unlikely to pass cuts on.”
———————————–
Weak dollar costs U.S. economy its No. 1 spot
Fri Mar 14, 2008 5:17pm EDT
PARIS (Reuters) - The U.S. economy lost the title of “world’s biggest” to the euro zone this week as the value of the dollar slumped in currency markets.
Taking the gross domestic product of both economies in 2007, the combined GDP of the 15 countries which use the euro overtook that of the United States when the European currency surged to a record high of more than $1.56 per euro.
“The curious outcome of breaching this latest milestone is that the size of the euro zone’s annual output has now exceeded that of the U.S.,” the economics department of Goldman Sachs, the Wall Street investment bank, said in a note to clients.
Taking official estimates of 2007 GDP — $13,843,800 billion for the United States and 8,847,889.1 billion euros for the euro zone — the economy of the latter passed the United States once converted into dollars, shortly after the euro topped $1.56.
The dollar sank to $1.5688 per euro late in European trading hours on Friday, at which rate the euro zone’s 2007 GDP equates to $13,880,568.4 billion.
The 2007 GDP estimates are as published by the U.S. Commerce Department’s Bureau of Economic Analysis and provided to Reuters on request for the euro zone by Eurostat, the European Union’s statistics office.
———————————-
Borrowers Find What Citigroup Says Isn’t What It Does
By Bob Ivry
March 14 (Bloomberg) — Real estate developer John Wimmer paid Citigroup Global Markets Realty Corp. almost $1 million last year to lock in a 5.6 percent mortgage rate on the refinancing of six commercial properties.
At the November closings, Citigroup, citing plummeting demand for mortgage bonds, boosted the rate to 7.123 percent.
“I was very upset,” Wimmer said in a phone interview from his office in Hales Corners, Wisconsin. “We had many proposals to lock the rate with other financial institutions and we picked Citigroup because of their reputation and strength.”
Wimmer sued. So did a developer in Kentucky after Prudential Mortgage Capital Co. invoked the “material adverse change” clause in their loan agreement to raise his rate.
Banks have used the clause after calamities such as the terrorist attacks of Sept. 11, 2001, to free themselves from lending obligations. With the spreads between commercial mortgage- backed securities and 10-year U.S. Treasuries at their widest in at least 12 years, banks are applying the concept to avoid lending at money-losing rates, scuttling deals, leaving borrowers at risk and casting doubt on contracts that have already been negotiated.
“We are in an extremely uncertain time and no one should feel sanguine about any agreements that are on the table,” said Scott A. Singer, executive vice president of Singer & Bassuk Organization in New York, which arranges real estate financing. “Lenders with the best intentions find the game changing on them. This is a time to put your head down and execute business as quickly and efficiently as you can.”
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Paulson admits deregulation has failed us all
By MarketWatch
Last update: 1:00 p.m. EDT March 13, 2008
Commentary: Mortgage proposals spell end to decades of looking other way
WASHINGTON (MarketWatch) — You know things are very very bad on Wall Street when a guy like Henry Paulson — Treasury secretary, solid Republican, and former Goldman Sachs CEO — joins the crowd calling for more regulation over the financial markets.
Paulson spared no one in his criticism Thursday of the excesses of deregulation that has now created the worst global financial crisis in a generation, threatening the health of the U.S. economy, the savings of millions of Americans, and the survival of some of the biggest financial institutions in the world. See full story.
Wall Street and Washington both failed big time, he said. Wall Street invented new ways to make money by selling securities so complicated that no one could really follow which shell the pea was under. Fortunes were made on the paper Wall Street sold.
At the same time, Washington’s watchdogs were dozing, tranquilized by the false assurance that Wall Street would police its own.
It’s been obvious for years now that Wall Street could not be trusted, and finally official Washington agrees. The markets need a tougher cop to make sure that money-center banks, investment banks, credit-rating agencies, hedge funds, mortgage brokers and the rest don’t let their own greed and arrogance ruin it for the rest of us.
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Bear $2 share to JPM!! WOW details
JPMorgan Chase To Acquire Bear Stearns
Sunday , March 16, 2008 19:04ET
NEW YORK, Mar 16, 2008 (BUSINESS WIRE) — JPMorgan Chase & Co. (NYSE: JPM) announced it is acquiring The Bear Stearns Companies Inc. (NYSE: BSC). The Boards of Directors of both companies have unanimously approved the transaction.
The transaction will be a stock-for-stock exchange. JPMorgan Chase will exchange 0.05473 shares of JPMorgan Chase common stock per one share of Bear Stearns stock. Based on the closing price of March 15, 2008, the transaction would have a value of approximately $2 per share.
Effective immediately, JPMorgan Chase is guaranteeing the trading obligations of Bear Stearns and its subsidiaries and is providing management oversight for its operations. Other than shareholder approval, the closing is not subject to any material conditions. The transaction is expected to have an expedited close by the end of the calendar second quarter 2008. The Federal Reserve, the Office of the Comptroller of the Currency (OCC) and other federal agencies have given all necessary approvals.
In addition to the financing the Federal Reserve ordinarily provides through its Discount Window, the Fed will provide special financing in connection with this transaction. The Fed has agreed to fund up to $30 billion of Bear Stearns’ less liquid assets.
“JPMorgan Chase stands behind Bear Stearns,” said Jamie Dimon, Chairman and Chief Executive Officer of JPMorgan Chase. “Bear Stearns’ clients and counterparties should feel secure that JPMorgan is guaranteeing Bear Stearns’ counterparty risk. We welcome their clients, counterparties and employees to our firm, and we are glad to be their partner.”
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Fed Takes Steps to Ease Crisis, Cuts Lending Rate to Financial Institutions to 3.25 Percent
By JEANNINE AVERSA
AP Economics Writer
WASHINGTON (AP) — The Federal Reserve, in an extraordinarily rare weekend move, took bold action Sunday evening to provide cash to financially squeezed Wall Street investment houses, a fresh effort to prevent a spreading credit crisis from sinking the U.S. economy.
The central bank approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created a lending facility for big investment banks to secure short-term loans. The new lending facility will be available to big Wall Street firms on Monday.
“These steps will provide financial institutions with greater assurance of access to funds,” Federal Reserve Chairman Ben Bernanke told reporters in a brief conference call Sunday evening.
The Fed acted just after JP Morgan Chase & Co. agreed to buy rival Bear Stearns Cos. for $236.2 million in a deal that represents a stunning collapse for one of the world’s largest and most venerable investment banks. Just on Friday the Fed had raced to provide emergency financing to cash-strapped Bear Stearns through JP Morgan. Days earlier the Fed announced a set of other unconventional steps to thaw out a credit market in danger of freezing shut.
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Buy Signals Abound in U.S. Stocks Near Bear Market
By Michael Tsang
March 17 (Bloomberg) — U.S. stocks are on the brink of the broadest bear market in four decades as investors ignore the strongest buy signals in almost 20 years.
The retreat by all 10 industries in the Standard & Poor’s 500 Index pushed the measure down 18 percent since its Oct. 9 record and 12 percent since the start of the decade. The plunge resembles declines in the 1970s and 1930s, the two worst periods for U.S. equities in the past 80 years. The last six times the index has fallen by 20 percent, only once — on Black Monday in 1987 — has the sell-off been so encompassing.
“I tend to agree with the fellow who says, `Hey, this is the greatest financial crisis since World War II,”’ said Jean- Marie Eveillard, 68, who runs the $21.3 billion First Eagle Global Fund in New York. The fund, which has returned an average 15.2 percent each year this decade compared with a less than 0.1 percent annualized gain for the S&P 500, has about 25 percent in cash and gold, more than its holdings in U.S. stocks. “Investors who take the attitude that the economy will be slow in the first half and then it will turn around, they’re probably dreaming.”
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Debt Reckoning: U.S. Receives a Margin Call
By LIZ RAPPAPORT and JUSTIN LAHART
March 15, 2008
The U.S. is at the receiving end of a massive margin call: Across the economy, wary lenders are demanding that borrowers put up more collateral or sell assets to reduce debts.
The unfolding financial crisis — one that began with bad bets on securities backed by subprime mortgages, then sparked a tightening of credit between big banks — appears to be broadening further. For years, the U.S. economy has been borrowing from cash-rich lenders from Asia to the Middle East. American firms and households have enjoyed readily available credit at easy terms, even for risky bets. No longer.
Recent days’ cascade of bad news, culminating in yesterday’s bailout of Bear Stearns Cos., is accelerating the erosion of trust in the longevity of some brand-name U.S. financial institutions. The growing crisis of confidence now extends to the credit-worthiness of borrowers across the spectrum — touching American homeowners, who are seeing the value of their bedrock asset decline, and raising questions about the capacity of the Federal Reserve and U.S. government to rapidly repair the problems.
Global investors are pulling money from the U.S., steepening the decline of the U.S. dollar and sending it below 100 yen for the first time in a dozen years. Against a trade-weighted basket of major currencies, the dollar has fallen 14.3% over the past year, according to the Federal Reserve. Yesterday it hit another record low against the euro, falling 2.1% this week to close at 1.567 dollars per euro.
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More in foreclosure choose to walk away
Carolyn Said
SF Chronicle Staff Writer
Sunday, March 16, 2008
Foreclosure used to be a last resort, something that hard-pressed homeowners would scrimp and plead to avoid. But as the subprime lending crisis sweeps up millions of borrowers nationwide, some are deliberately choosing foreclosure as an early option.
As their home values tumble and their mortgages rise, these “walk away homeowners” decide to cede their houses to their lenders.
“It’s throwing good money away after bad” to pay an escalating mortgage on a home that’s plunging in value, said Army Sgt. 1st Class Nicklaus Skaggs of Vacaville. He and his wife, Tishara, stopped paying their mortgage in February. They signed up with a new company called You Walk Away to help guide them through the multi-month foreclosure process.
The couple paid $455,000 for their Vacaville home almost three years ago, shortly after Nicklaus Skaggs returned from a year in Iraq. Now the home’s value has dropped to $290,000. Their adjustable-rate mortgage, which started at about $3,000 a month, has reset twice, climbing to about $4,000.
They have no regrets about their decision.
“I feel like the pressure has lifted off my shoulders; before I was trapped,” said Nicklaus Skaggs, 40, an earnest man who plans to retire from the Army in two years, after completing 20 years of service.
“If we keep paying the mortgage, we would really sink ourselves,” added Tishara Skaggs, 35, who was an Army specialist driving heavy-wheel trucks until her lupus led to a medical discharge in 2002. The Skaggses have two daughters, Tabitha, 7, and Madisyn, 6 months.
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Wall Street waits for the next domino to fall
By Francesco Guerrera and Michael Mackenzie in New York
Last updated: March 17 2008 02:43
A big Bear Stearns-shaped cloud will be hanging over Wall Street this week.
As investment banks including Goldman Sachs, Lehman Brothers and Morgan Stanley kick off the first quarter reporting season, investors’ already-frayed nerves have been strained to breaking point by the crisis surrounding Bear.
Bankers say last week’s near-collapse of one of the most feared and influential US brokerage firms could not have come at a worse time for a sector battered by bad news and huge losses.
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Gulf Arab States Should Scrap Dollar Currency Pegs, Faber Says
By Arif Sharif
March 16 (Bloomberg) — Marc Faber, managing director of Marc Faber Ltd. and publisher of the Gloom, Boom & Doom report, said Persian Gulf economies should revalue their currencies after the dollar slumped to record lows.
Saudi Arabia, the United Arab Emirates and three other Gulf states should link their currencies “to a basket, and not the weakest currency in the world,” Faber told a Middle East investment conference in Abu Dhabi today. “They should have de- pegged their currencies a long time ago,” he said.
Faber, who advised investors to buy gold at the start of its six-year rally, this month said Federal Reserve moves to cut interest rates to avert a U.S. economic slowdown will “destroy the U.S. dollar.”
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A Wall Street Domino Theory
By JENNY ANDERSON and VIKAS BAJAJ
Published: March 15, 2008
The Federal Reserve’s unusual decision to provide emergency assistance to Bear Stearns underscores a long-building concern that one failure could spread across the financial system.
Wall Street firms like Bear Stearns conduct business with many individuals, corporations, financial companies, pension funds and hedge funds. They also do billions of dollars of business with each other every day, borrowing and lending securities at a dizzying pace and fueling the wheels of capitalism.
The sudden collapse of a major player could not only shake client confidence in the entire system, but also make it difficult for sound institutions to conduct business as usual. Hedge funds that rely on Bear to finance their trading and hold their securities would be stranded; investors who wrote financial contracts with Bear would be at risk; markets that depended on Bear to buy and sell securities would screech to a halt, if they were not already halted.
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Goldman Sees `Explosive’ Commodity Rallies, $175 Oil (Update1)
By Claudia Carpenter and Alexander Kwiatkowski
March 14 (Bloomberg) — Commodities may have “explosive rallies” in the next couple of years, with crude oil rising to $175 a barrel, according to Goldman Sachs Group Inc.
Political decisions on money flows, labor and technology are “substantially constraining supply growth” of commodities, Goldman analysts including Jeffrey Currie in London wrote in a report today. “This will likely support the ongoing structural bull market in commodities until these policy-driven investment constraints are removed and/or demand is adjusted.”
Commodities are in their seventh year of gains as underinvestment in refineries, mines and land sent prices for oil, gold, platinum and wheat to records. More natural resources are controlled by political entities than at any time since the 17th century, according to the Goldman report.
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AMSTERDAM (Reuters) - The U.S. dollar’s value is dropping so fast against the euro that small currency outlets in Amsterdam are turning away tourists seeking to sell their dollars for local money while on vacation in the Netherlands.
“Our dollar is worth maybe zero over here,” said Mary Kelly, an American tourist from Indianapolis, Indiana, in front of the Anne Frank house. “It’s hard to find a place to exchange. We have to go downtown, to the central station or post office.”
That’s because the smaller currency exchanges — despite buy/sell spreads that make it easier for them to make money by exchanging small amounts of currency — don’t want to be caught holding dollars that could be worth less by the time they can sell them.
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$2,000 an ounce gold is in the cards
By MarketWatch
Last update: 8:10 a.m. EDT March 18, 2008
BOSTON (MarketWatch) — Frank Holmes, chief executive officer at U.S. Global Investors, says that gold will hit $2,000 an ounce and that while the move won’t be straight there from current levels investors should not be surprised by it.
Holmes noted that virtually all commodities have gone through their “inflation-adjusted 1980 price levels,” with the notable exception of gold, and that to get to that range the price of gold would have to top $2,000 an ounce. Holmes said he expects a short-term pull-back in gold — based on a correction he sees coming in oil and a short rally in the dollar, both of which will impact gold prices — but that the long-term trend will be strongly upward.
In a radio interview with Chuck Jaffe, MarketWatch senior columnist, Holmes noted that gold correlates to the price of oil 90% of the time — meaning it moves with oil prices almost all the time — and has an inverse relation to the dollar 70% of the time. With oil prices on the rise and the dollar weakening, it’s a market condition that bodes well for gold, especially because gold is “not at astronomical levels yet, when compared to other commodities … There’s a lot more room.”
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Derivatives the new ‘ticking bomb’
By Paul B. Farrell, MarketWatch
Last update: 7:31 p.m. EDT March 10, 2008
Buffett and Gross warn: $516 trillion bubble is a disaster waiting to happen
ARROYO GRANDE, Calif. (MarketWatch) — “Charlie and I believe Berkshire should be a fortress of financial strength” wrote Warren Buffett. That was five years before the subprime-credit meltdown.
“We try to be alert to any sort of mega-catastrophe risk, and that posture may make us unduly appreciative about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”
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The Fed’s Wall Street Dilemma
By PAM MARTENS
March 17, 2008
Too Big to Bail
Americans learned two new truths last week from the Bush Administration’s version of Life’s Little Instruction Book: if you’re a Wall Street miscreant you’re thrown a lifeline; if you’re a Wall Street crime fighter you’re thrown a land mine.
In the first effort, the Feds effectively handed a Federal Reserve ATM card to JPMorgan to funnel your tax dollars to the teetering Bear Stearns brokerage firm to address counterparty risks that have been building for at least 4 years as the Feds snoozed. Counterparty risk is the trillions of dollars of insurance contracts (credit default swaps and other derivatives) taken out by Wall Street firms on each others (counterparty) bonds, bundled mortgage and commercial debt (collateralized debt obligations). The firms have used unregulated over-the-counter contracts to perform this risk transfer alchemy and funded their own company, Markit Group Ltd., to take the place of a regulated exchange for price discovery.
In the second effort, the Feds tapped the Department of Justice, Internal Revenue Service, U.S. Attorney’s office in New York, FBI, five federal judges and a busy federal court to root out that Code Red threat to our national security: consensual sex. The sex involved a prostitution ring and Democratic New York State Governor, Eliot Spitzer, who was savaged and forced to step down by an avenging media mob abundantly fed with well placed leaks from a suspiciously homogenous group called “anonymous law enforcement officials.” Governor Spitzer, in his former role as New York State Attorney General, had taken the lead in rooting out Wall Street crimes against small investors because the Federal Reserve was preoccupied with lobbying to remove regulations on Wall Street’s crime factory.
As usual, the Feds handed the bill to the governed with no thought to the will of the governed.
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Secretary of Treasury Henry Paulson admits U.S. economy in sharp decline
March 18, 2008
David Lawder and Andy Sulliva
WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson on Tuesday described the economy as being in “sharp decline,” the closest he has come yet to conceding an election-year recession has set in.
Appearing tired after a weekend of helping to broker a fire sale takeover of Wall Street investment bank Bear Stearns to keep it from outright collapse, Paulson pushed back against efforts to have him admit a recession was under way.
“There’s no doubt that the American people know that the economy has turned down sharply. So to me much less important is the label that’s placed on it today. Much more important is what we do about it,” he told NBC’s Today Show.
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Welcome to the Future
by M.A. Nystrom
March 18, 2008
Last Friday we got a taste of what the future is likely to be like as we make our way further into the belly of the second great depression. The Fed rushed to bail out a venerable Wall Street institution, which was rumored to be insolvent. Sunday evening, that rumor was confirmed to be true, as Bear Stearns agreed to sell itself to JP Morgan for a paltry $2 per share. Two dollars! This for a firm that was trading at $170 just over a year ago, and was as high as $54 just Friday! If Bear Stearns is only worth $2 per share, how can we possibly say with any confidence what other “investment banks” are worth?
While this bankruptcy comes as a shock to nearly everyone, it should be a surprise to no one. The global financial system has been teetering on a precipice for years if not decades, pumped up by unsustainable amounts of debt at every level of the economy, and is primed for a crash. That the crash has been postponed countless times by even easier money lent to yet poorer credit risks has served only to instill a false sense of confidence in markets and to magnify the impending calamity that seems finally to be at hand. Warnings that have been sounded on websites such as this one appear finally to be coming true, as confirmed by none-other than the venerable Wall Street Journal in a front page article titled, “Debt Reckoning: US Receives a Margin Call.”
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WE ARE WATCHING THE BIGGEST PANIC
by Monty Guild & Tony Danaher
Guild Investment Management, Inc.
March 17, 2008
WE ARE WATCHING THE BIGGEST PANIC IN GLOBAL FINANCIAL MARKETS THAT HAS OCCURRED IN MY 65 YEARS OF LIFE AND 50 YEARS OF STOCK, BOND, AND COMMODITIES INVESTING.
It’s Saint Patrick’s Day weekend…old Saint Patrick would probably be fascinated to see all the rich and worldly people running around in a panic.
Yesterday, J.P. Morgan and the U.S. Federal Reserve began a credit lifeline to Bear Stearns. This is a long and complicated story, but we will attempt to summarize. Bear Stearns had a run, much like the bank runs of the late 19th and early 20th centuries. It had something to do with Bear Stearns itself, but not as much as you would think if you were an average fairly sophisticated citizen with some understanding of how the financial markets work. I believe that most financial professionals may not completely understand what is happening. The lifeline and financing was done not to protect Bear Stearns alone but to protect the entire global banking system.
Bear Stearns is a PRIMARY DEALER IN U.S. GOVERNMENT BONDS. THIS IS A VERY SMALL AND VERY IMPORTANT CLUB. They also have been a leader in the business of prime brokerage, and in the field of trade settlement and clearing; two very profitable, mostly fee based businesses that have been the envy of many other financial institutions. These have been their cash cows and very attractive businesses that have long been sought by other buyers.
Although quite large, Bear Stearns is the smallest of the top U.S. government bond dealers, so if someone wants to attack the system they will attack the smallest of the truly powerful bond houses. Bear Stearns, like all major bond dealers and traders, also trades in mortgage bonds and derivatives and this is where the problems arose. Bear Stearns CEO said on Wednesday March 12, 2008 that the company is well capitalized and that the balance sheet is strong. I believe he was telling the truth. However, they are not immune to a run on the bank, and neither is any other major bank or investment bank in the world.
BEAR STEARNS, AS A PRIMARY DEALER, CANNOT BE ALLOWED TO FAIL WITHOUT UNDERMINING THE CONFIDENCE IN THE U.S. AND THE WORLD FINANCIAL SYSTEM.
Yesterday, Bear Stearns was protected from failing to meet its commitments to counterparties because, to let a primary dealer fail, would mean a run on every major banking and investment banking institution in the developed world…and would almost certainly lead to a massive global depression in our considered and firm opinion.
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An Excerpt From Doug Noland
NOLAND: Wishing for Another Z.1
by Doug Noland
March 14, 2008
March 14 - Financial Times (Michael Mackenzie, Aline van Duyn, and Peter Thal Larsen): “Bear Stearns is hardly Wall Street’s biggest investment bank but its travails have far-reaching consequences for the global financial system because of its crucial behind-the-scenes role in some of the world’s most troubled markets. Bear is a significant underwriter of mortgage securities, an active trader of derivatives and leading financier of hedge funds. Analysts said it was almost impossible to know what impact Bear’s problems would have on its clients, its counterparties and on other investors holding securities or derivatives that Bear is trying to liquidate. ‘The ripples could be widely felt because Bear Stearns has so many points of contact with everyone else in the financial industry,’ said Matt D’Amico, partner in the banking business at law firm Bryan Cave. Evidence of bubbling contagion in the financial markets can be seen in the dramatic surge in the cost of credit insurance for global banks. Many banks have double-A credit ratings, but the price charged to insure their debt is more typical of lower-rated companies.”
March 12 - Financial Times (James Mackintosh): “Another three big hedge funds have been forced to close down or to suspend investor withdrawals as the credit squeeze persists. Drake Management, a $12bn New York manager, wrote to investors in its three hedge funds on Wednesday offering them the choice of winding up the funds after about half asked for their money back. Global Opportunities Capital, $870m Amsterdam hedge fund, said it would block withdrawals until the end of the year to prevent firesales of shares… It also emerged that Blue River Asset Management, a Colorado-based hedge fund manager specialising in municipal bonds, was to shut its main fund after nearly 80% losses, even after raising $110m for a fresh fund. ‘These are very tough times,’ said Angelos Metaxa, a director of CM Advisors, a Geneva-based fund of hedge funds. ‘Anyone with significant amounts of leverage is going to be in trouble.’”
March 14 - Financial Times (Joanna Chung and Peter Garnham): “The collapse of the dollar, which suffered another sharp fall on Thursday, is causing growing difficulties for economies whose currencies are tied to the greenback. A sliding dollar, whose decline has been accelerated by a series of interest rate cuts in the US, is feeding growing inflationary pressures in countries as varied as China, Saudi Arabia and Russia. These pressures, which could lead to significant economic and social problems, may get worse if, as expected, the US Federal Reserve slashes its main interest rate by 75 basis points…next week. Indeed, some analysts believe that the Fed’s aggressive policy-easing to stabilise the US economy may end up destabilising those emerging-market economies with fixed or quasi-fixed dollar pegs…”
March 12 - The Wall Street Journal (Robin Sidel): “Here comes another headache for banks suffering from the mortgage downturn: Losses on home-equity loans are soaring, even at some lenders that avoided big blunders on subprime loans. When times were good, banks raked in billions of dollars in profit from home-equity loans, which allow borrowers to tap the accumulated value in their property with either a loan for a specific amount or a line of credit. As long as home prices were rising, lenders had little to worry about. But falling home values are leaving banks with little or nothing to collect on many home-equity loans in case of default. Some stretched borrowers are keeping up with their mortgage and credit cards — but not their home-equity loan.”
March 14 - Bloomberg (Erik Holm and Josh P. Hamilton): “The collapse of the subprime mortgage market will lead to record losses for insurance companies, overtaking Hurricane Katrina, the worst natural disaster in U.S. history. The amount of asset writedowns and credit losses reported by the industry has reached at least $38 billion, just short of the $41.1 billion in claims from Katrina…”
China Watch:
March 11 - Bloomberg (William Bi): “China’s northern provinces, the country’s biggest grain-growing region, may suffer an extended drought this month as winter wheat crops start to need rain, the China Meteorological Administration said. Heilongjiang, Jilin and eastern Inner Mongolia have had 1.8 millimeters of precipitation this year, the lowest since 1951, while other regions received as little as 80% of average rain or snow… Drought is afflicting northern China after the worst snowstorms in 50 years lashed its southern provinces, killing livestock and damaging crops there.”
March 12 - Bloomberg (Kevin Hamlin): “China’s money-supply growth slowed in February. M2…rose 17.5% to 42.1 trillion yuan ($5.9 trillion) from a year earlier…”
March 11 - Bloomberg (Kevin Hamlin and Li Yanping): “China’s inflation accelerated to the fastest pace in 11 years as the worst snowstorms in half a century disrupted food supplies, adding pressure on the central bank to raise interest rates. Consumer prices climbed 8.7% in February from a year earlier after gaining 7.1% in January… Food costs soared 23% after blizzards destroyed crops and snarled transport links…”
Unbalanced Global Economy Watch:
March 13 - Bloomberg (Brian Swint and Jennifer Ryan): “Britons’ inflation expectations rose to the highest in at least eight years in a Bank of England survey last month… Consumers predict prices will increase 3.3% in the next 12 months, up from 3% in November…”
March 11 - Bloomberg (Jennifer Ryan): “The U.K. housing slump deepened in February, becoming the worst since the eve of the nation’s last recession in 1990, a survey of real-estate professionals showed.”
March 10 - Bloomberg (Jennifer Ryan): “U.K. producer-price increases matched the fastest annual pace since 1991 last month as factories passed on record raw-material cost gains to their customers, add
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