Tuesday 28 September 2010

Conditioning the Market.

Baltic Dry Index. 2451 +07
LIR Gold Target by 2019: $3,000.

The whole history of civilization is strewn with creeds and institutions which were invaluable at first, and deadly afterwards.

Walter Bagehot.

Get ready for helicopter drops by the Fed. Stay long precious metals like the other scared central banks. Below, the Fed is using today’s Journal to condition the market for the coming dollar devaluation. No shock and awe, this time round, they say. This QE will be a kinder, gentler, baby steps monetization. Whatever it’s called, it’s an admission of failure by the Fed that the first round of monetization didn’t work. On to round two, and then round three when round two fails ahead, as it will. Over at Zerohedge.com they have speculated that the Fed will drop another 3 trillion dollars over the next 6 months! I have no basis to pick a number, but in a 14 trillion dollar economy undergoing a credit contraction, that’s the kind of number needed to hold the economy out of a back to back recession.

The trouble with QE to bailout the wreckage of a casino economy the banksters and squids left behind, is that it can never be ended. The moment it ends the false economy buckles, and the next Lehman looms into view. The Fed then panics. How can it then let happen what would have happened before, but only after wasting trillions more? So more new money is created by slight of hand, and given mostly to the gamblers that created the wrecked economy in the first place. Stay long gold and silver, we’ll not last the decade on such policy.

" it might be well if you would ask yourself, are you better off than you were four years ago? Is it easier for you to go and buy things in the stores than it was four years ago? Is there more or less unemployment….”

Ronald Reagan.

SEPTEMBER 28, 2010

Fed Mulls New Bond Approach

Federal Reserve officials are considering new tactics for the purchase of long-term U.S. Treasury securities to bolster a disappointingly slow recovery.

Rather than announce massive bond purchases with a finite end, as they did in 2009 to shock the U.S. financial system back to life, Fed officials are weighing a more open-ended, smaller-scale program that they could adjust as the recovery unfolds.

The Fed hasn't yet committed to stepping up its bond purchases, and members haven't settled on an approach. After its meeting last week, the Fed's policy committee said it was "prepared" to take new steps if needed.

A decision on whether to buy more bonds depends on incoming data about economic growth and inflation; if the economy picks up steam, officials might decide no action is needed.

The Fed's internal debate about a bond-buying strategy is emblematic of the challenging position in which it finds itself. In normal times, it simply raises or lowers short-term interest rates to guide the economy.

But having pushed short-term rates to near zero, it now has to devise new, untested approaches at almost every turn. A misstep could lead to unintended consequences, one factor that makes officials wary and investors jittery about its every move.

In theory, buying long-term bonds pushes other interest rates down because it reduces the supply of debt available to investors, pushing up the price of this debt and the yield down.

------Under the alternative approach gaining favor inside the Fed, it would announce purchases of a much smaller amount for some brief period and leave open the question of whether it would do more, a decision that would turn on how the economy is doing. This would give officials more flexibility in the face of an uncertain recovery.

----A move to resume the purchases would be a big step for the Fed, which just a few months ago was talking about how to reduce its portfolio.

-----Markets anticipate the Fed will pull the trigger, barring some surprise turn in the economy. Economists at Goldman Sachs Group Inc. estimate the Fed will end up purchasing at lest another $1 trillion in securities, and estimate that would push long-term interest rates down by a further 0.25 percentage point.

-----The Goldman economists estimate that an open-ended, small-scale approach would have less impact on bond markets than a large one-time approach, because investors wouldn't be certain about whether such a program would continue.

"The more you commit to large amount of purchases up front, the bigger effect you're going to get," says Jan Hatzius, Goldman's chief economist.

http://online.wsj.com/article/SB10001424052748703694204575518222145769804.html

Elsewhere the news was more positive. Eur-Asia is increasingly linking up. Resource rich, population poor Russia, is beginning the much needed integration with the world’s largest single market in resource poor, population rich China. In time, this dynamic, together with the arrival of the start of the renewable energy era, will eventually lift our Squid wrecked economies out of the morass they were left in, but not before we destroy the Great Nixonian Error of fiat currency.

Russia, China fete completion of oil pipeline

Mon Sep 27, 4:56 am ET

BEIJING (AFP) – The leaders of China and Russia celebrated Monday the completion of a cross-border oil pipeline, a symbol of growing ties between the two emerging economic powers, particularly in the energy sector.

Visiting Russian President Dmitry Medvedev and his Chinese host President Hu Jintao attended a launch ceremony for the long-awaited pipeline linking the world's biggest oil producer with the largest energy consumer.

The deal reached last year -- which will see China receive oil for 20 years in exchange for 25 billion dollars in loans -- is a "milestone" for energy cooperation between the two neighbours, Hu said.

The countries are still finalising a deal that could see 70 billion cubic metres of Russian natural gas sent to China each year, and have also announced plans to jointly build a five-billion-dollar oil refinery in northern China.

"Both sides believe that the current strategic partnership between China and Russia stands at a new starting point," Hu said after talks with Medvedev, hailing a "new era" in ties.

"The smooth completion of the pipeline project is a model of the two countries' mutually beneficial win-win cooperation and a milestone for Sino-Russian energy cooperation," state media quoted Hu as saying.

The two leaders signed a series of economic and political agreements, including pacts on cooperation in future gas supplies, energy efficiency, renewable energy, nuclear power and the prevention of illegal fishing.

Medvedev -- who is visiting China for three days -- said the documents would give a "new impetus" to the Sino-Russian relationship.

----Trade between Russia and China totalled 25.5 billion dollars in the first six months of this year, according to official data.

The deal on the oil pipeline -- which runs from eastern Siberia to the northeastern Chinese city of Daqing -- is part of efforts by Moscow to seek new markets for its crude exports, especially in fast-growing Asia.

Beijing is also looking to secure much-needed resources to fuel its booming economy, now the second largest in the world behind the United States.

http://news.yahoo.com/s/afp/20100927/wl_asia_afp/chinarussiadiplomacy_20100927085705

In China news, the consolidation of the rare earths and metals suppliers is gaining pace. Since China is monopoly supplier to the world of these vital components of modern life, this may or may not be a good thing for the west. It certainly should drive exploration for replacements in the west, but is the capital available to bring on-stream the alternate supply, given prices will always be set by Chinese dictat?

Chinalco plans $1.5 billion investment in rare earths

Sept. 27, 2010, 9:33 p.m. EDT

TOKYO (MarketWatch) — Aluminum Corp. of China said Monday it plans to take on a majority stake in Jiangxi Rare Earth and Rare Metals Tungsten Group for an investment of “not less than” 10 billion yuan ($1.5 billion).

Under the agreement between the two companies, signed Sunday at the Expo Central China 2010, Chinalco will help the Nanchang-based Jiangxi firm, a major producer of tungsten, develop rare-earth resources in the next 3-5 years.

The pact follows an announcement by China earlier this month that the country would encourage mergers and acquisitions in the rare-earth sector to speed up industry consolidation, according to a report from the state-run Xinhua news agency.

Last week, the New York Times reported that China halted shipments of rare-earth minerals to Japan amid a dispute over the detention of the captain of a Chinese fishing trawler, who has since been released.

However, Chinese officials have denied that such an export ban was in place.

Rare earths are used in many products, gadgets and critical cutting-edge technologies, and China has all but cornered the market, accounting more than 90% of global rare-earth production.

http://www.marketwatch.com/story/chinas-chinalco-plows-15-bln-into-rare-earths-2010-09-27

"As fewer and fewer people have confidence in paper as a store of value, the price of gold will continue to rise."

Jerome F. Smith

At the Comex silver depositories Monday, final figures were: Registered 53.78 Moz, Eligible 56.68 Moz, Total 110.46 Moz.

+++++

Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

Below, the Deputy Governor of the Bank of England has a Charlie Munger moment. After allowing the banksters to trash the economy, the BOE is now busy trashing the currency in a stealth devaluation, in an effort to recreate Camelot. Unfortunately they have now been joined in devaluation by all the rest, negating any advantage. Below, Mr. Bean tells UK savers to “suck it up” and start spending their seed corn for the good of the economy! You couldn’t make up such arrogant nonsense in a film. “Sell off the family silver and buy more useless knick knacks made in China”, seems to be his bizarre message. You have to wonder if the BOE goes out of its way to pick arrogant loonies. Still this is the same BOE that advised “the man who saved the world” to sell off half Britain’s gold reserves at the post 1980 lows. Time to tell Mr. Bean to jack it in and stalk off. Wanted: a commonsense man at the BOE. One who recognizes that saving is good, living with one’s means is right, and that bailing out banksters is heresy.

A large Bank is exactly the place where a vain and shallow person in authority, if he be a man of gravity and method, as such men often are, may do infinite evil in no long time, and before he is detected.

Walter Bagehot. Lombard Street. 1873.

Savers told to stop moaning and start spending

Savers should stop complaining about poor returns and start spending to help the economy, a senior Bank of England official warned today.

By Robert Winnett and Myra Butterworth Published: 10:03PM BST 27 Sep 2010

Older households could afford to suffer because they had benefited from previous property price rises, Charles Bean, the deputy governor, suggested.

They should "not expect" to live off interest, he added, admitting that low returns were part of a strategy.

His remarks are likely to infuriate savers, who are among the biggest victims of the recession. About five million retired people are thought to rely on the interest earned by their nest-eggs. But almost all savings accounts now pay less than inflation.

The typical savings rate has fallen from more than 2.8 per cent before the financial crisis to 0.23 per cent last month.

Mr Bean said he "fully sympathised". But he continued: "Savers shouldn't necessarily expect to be able to live just off their income in times when interest rates are low. It may make sense for them to eat into their capital a bit."

-----Mr Bean said that encouraging Britons to spend was one reason why the Bank had cut interest rates. They have been held at 0.5 per cent for 18 months, hitting rates offered on savings accounts.

The strategy had led to Mervyn King, the governor, receiving many letters of complaint.

But it was designed to return the economy to a reasonable level of activity as quickly as possible, he said. "The faster we can achieve that, the sooner interest rates will get back to more normal levels."

----- The comments angered groups representing the elderly and those putting money aside. The Daily Telegraph has campaigned for protection for savers.

Ros Altmann, director-general of Saga, said: "Savers are being taken advantage of. They did the right thing and have been let down at the other end of the deal.

"I don't think this is what most people would consider fair."

http://www.telegraph.co.uk/finance/personalfinance/savings/8028884/Savers-told-to-stop-moaning-and-start-spending.html

Again, it may be said that we need not be alarmed at the magnitude of our credit system or at its refinement, for that we have learned by experience the way of controlling it, and always manage it with discretion. But we do not always manage it with discretion. There is the astounding instance of Overend, Gurney, and Co. to the contrary. Ten years ago that house stood next to the Bank of England in the City of London; it was better known abroad than any similar firm known, perhaps, better than any purely English firm. The partners had great estates, which had mostly been made in the business. They still derived an immense income from it.

Yet in six years they lost all their own wealth, sold the business to the company, and then lost a large part of the company`s capital. And these losses were made in a manner so reckless and so foolish, that one would think a child who had lent money in the City of London would have lent it better. After this example, we must not confide too surely in long-established credit, or in firmly-rooted traditions of business. We must examine the system on which these great masses of money are manipulated, and assure ourselves that it is safe and right.

Walter Bagehot. Lombard Street. 1873.

The monthly Coppock Indicators finished August:

DJIA: +243 Down. NASDAQ: +366 Down. SP500: +243 Down.

The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. August is the third down month in a row and “crash season” approaches.

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