Saturday, 6 November 2010

Weekend Update – November 06 2010

At the peak of tulip mania in February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman. It is generally considered the first recorded speculative bubble.

Baltic Dry Index. 2495 -183
LIR Gold Target by 2019: $30,000. Revised.

At some point this decade we are headed for dollar swap of anywhere from 100 to 1 to 1000 to 1, depending only on how long Bernoccio is left in charge of US dollar policy. Today we are revising our gold target to reflect our new decade of fiat currency destruction.

LIR November 5, 2010.

Once on quantitative easing can a central bank ever get off it? The markets are starting to vote that they can’t. I think that they can, but that there’s no will power to achieve it in democracies like America and Great Britain. And so the Fed rolled out 600 billion more of quantitative easing, supposedly to jump start the US economy again, and get Americans borrowing and spending again like 2005-2007. Since the earlier QE1 program of 1.7 trillion failed to accomplish that, absolutely no one expects QE2 to accomplish much of anything except to devalue the dollar. Both Goldman Sacks and HSBC are on record saying that the Fed needs to do at least another 4 trillion in quantitative easing if it’s to come anywhere near it declared goal for the US economy. The Fed, once on QE programs can’t now end them without bringing about the very collapse they said they were designed to prevent. We will now get Fed QE programs ad infinitum, with dollar devaluation to match. The Fed has made a pact with the Keynesian devil. The markets are starting to reflect that fear. The rest of the G-20 excepting Great Britain which is pursuing its own Bank of England version of QE, now fear QE forever too. With US government essentially gridlocked for the next two years, the Fed is virtually the only functioning organ of government tackling the problems of the economy. In their Keynesian fiat currency world, monetisation and devaluation are the only two policy levers left. And don’t they and the rest of the world know it. We are in for a very ugly 2011 leading into a full fiat dollar crisis. This is why I have revised my gold target for 2019. Well before 2019, I think we will see at least one dollar – new dollar swap of 10 to 1.

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.'

Ludwig von Mises.

Germany Blasts Bernanke 11/05/2010

Results of Fed Stimulus Could Be 'Horrendous'

German Finance Minister Wolfgang Schäuble has sharply criticized the US Federal Reserve's decision to pump a further $600 billion into the country's ailing economy. He says the move could create problems for the global economy. Others have joined in the condemnation.

Germany is not impressed. One day after the United States Federal Reserve announced that it would pump $600 billion (€423 billion) into America's banking system over the next eight months, German Finance Minister Wolfgang Schäuble sharply criticized the decision.

"I don't think they are going to solve their problems that way," Schäuble told German public broadcaster ZDF in a Thursday evening interview. "They have already pumped an endless amount of money into the economy via taking on extremely high public debt and through a Fed policy that has already pumped a lot of money into the economy. The results are horrendous."

In a separate interview on public broadcaster ARD, Schäuble said that the move by Fed Chair Ben Bernanke would "create additional problems for the world." He promised to bring up the issue in talks with the US and said that, by following such a monetary path, the US was violating a pledge that all industrialized countries agreed to at the last G-20 summit in Toronto in June.

----German Economics Minister Rainer Brüderle, of the business-friendly Free Democratic Party, Chancellor Angela Merkel's junior coalition partners, is likewise skeptical that the Fed's path is the correct one. "I view the move with concern," he told reporters in Berlin on Thursday, adding that he doesn't think that a more liberal monetary policy will necessarily boost the economy. "It isn't enough to set out the water. The horses have to drink too."

-----Criticism has also come from China, with the country's central bank head, Zhou Xiaochuan saying that the Fed's move might hurt economies in the rest of the world. "There is a spill over," he said. Brazil, Indonesia and Japan have also voiced concern.

As has the financial press in Germany. "The most recent step taken by the Federal Reserve in the continuation of a series of undesirable developments in the US," writes the business daily Handelsblatt on Friday. "Instead of finally facing up to the excessive debt problem, accepting the uncomfortable truths and introducing painful reforms in the country, debt-financed stimulus programs remain the only strategy that Bernanke & Co. seem able to come up with.",1518,727457,00.html#ref=nlint

Nov. 5, 2010, 3:30 p.m. EDT

Gold rallies to record, a whisper from $1,400

Silver’s at 30-year high; copper at its best in more than two years

SAN FRANCISCO (MarketWatch) — Gold futures rallied to a fresh record high Friday, settling less than $3 away from $1,400 an ounce a day after their biggest one-day gain in nearly 20 months.

----The metal went from losses to a solid rally in under three hours of floor trading, and kept going even as other commodities and the stock market moderated their gains.

Gold rose 2.9% on the week, on the heels of a 2.5% gain in the prior week.

Gold’s record run on Friday surpassed Thursday’s settlement record of $1,383.10 an ounce, notched a day after the U.S. Federal Reserve said it would buy an additional $600 billion in U.S. Treasurys to stimulate the economy.

The metal got back into record-breaking mode Thursday. It had posted 17 record highs in little more than five weeks in September and October. Read more on Fed’s $600 billion on bond-buying plans.

In inflation -adjusted terms, however, gold is still far from its January 1980 record of $875 an ounce. Gold would have to trade around $2,300 an ounce to make up for three decades of inflation

For now, however, quantitative easing was giving investors a fresh reason to sell the dollar and seek a hedge against inflation in gold.

Silver and copper also rallied Friday.

Nov. 5, 2010, 4:01 p.m. EDT

Crude-oil futures close at two-year high

Prices settle at their best since October 2008

SAN FRANCISCO (MarketWatch) — Crude-oil futures overcame some weakness to settle at their best in more than two years, pushing toward $87 a barrel.

Crude for December delivery (CLZ10 87.40, +0.36, +0.41%) added 36 cents, or 0.4%, to $86.85 a barrel. That’s oil’s highest close since early October 2008, and a sharp recovery from an intraday low of $85.90 a barrel.

-----Weekly gains were even more formidable -- oil rose 6.6% from the previous Friday, a break from three consecutive weekly losses.

-----On Thursday, crude jumped more than 2% to settle at its highest level in almost seven months, tracking a rally in global markets and commodities after the Federal Reserve announced a massive bond-buying program to stimulate the U.S. economy.

----But crude’s recent rallies have not been driven only by the dollar, analysts at J.P. Morgan said in a note to clients Friday.

There are “fundamental drivers that are underpinning this rally,” they said, lifting their 2011 oil-price estimate to $92 a barrel.

Storage in ships has been declining, and global stocks of oil are decreasing. Nations outside the Organization of the Petroleum Exporting Countries, such as Russia and Iraq, have cut near-term production growth expectations when several refineries have ramped up their crude intake, the analysts said.

China’s state-controlled oil giant PetroChina announced Friday it will refine 8.5% more in November. That follows news earlier this week that Sinopec, Asia’s largest refiner, increased output nearly 10%.

“These rate increases are intended to meet fuel shortages, particularly middle distillates, which has been identified as the key product to watch as emerging-market economies continue to grow,” the analysts at J. P. Morgan said

To add to all our other troubles, the benefits of adopting fiat currency are all front loaded. Now on the downside of fiat currency, the negatives come flying home to roost fast. Commodity inflation is just starting and will likely make the 70s bout look innocent in comparison. This time round the misery in the west is compounded by high persistent unemployment, unrepayable debt commitments, and a massive and growing scandal in trillions of US mortgages, fraudulently securitised and falsely sold around the world as triple-A investments. As with Amsterdam tulips, the South Sea bubble, and the Mississippi scheme, all the delusional mal-investment must be written off. When that happens the Fed’s zero interest rate policy will end. The world bubble in US Treasuries will burst. Serial Lehman’s will appear out of nowhere thanks to the pretend accounting now in use. We haven’t seen anything yet. Is it any wonder the price of precious metals and tangible commodities is on the rise.

It’s an ill wind that blows nobody any good. One footnote of good news. As prices of fossil fuels rise, the renewable energy sector will come into its own this decade. Electric vehicle research and development, in all its forms, will surge and we will exit the decade with reliable practical, more environmentally sustainable transportation industry. Little good will it do us in 2011.

"For more than two thousand years gold's natural qualities made it man's universal medium of exchange. In contrast to political money, gold is honest money that survived the ages and will live on long after the political fiats of today have gone the way of all paper."

Hans F. Sennholz

Have a great weekend everyone.


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