Saturday, 11 December 2010

Weekend Update – December 11 2010

Baltic Dry Index. 2095 -73
LIR Gold Target by 2019: $30,000. Revised due to QE programs.

Due to travel committments, the next update will be Tuesday December 14th.

"The gold standard makes the money's purchasing power independent of the changing, ambitions and doctrines of political parties and pressure groups. This is not a defect of the gold standard; it is its main excellence."

Ludwig von Mises

There was better news this week on the state of the global economy. Suddenly everyone is predicting 2011 is going to be better than everyone thought. Below, PIMCO and the Paris based International Energy Agency on the rise of US and global economy. We aint never had it so good.

If facts do not conform to theory, they must be disposed of."

N.R.F. Maier, Maier's Law.

Pimco's Mohamed El-Erian predicts higher US growth

11:34PM GMT 09 Dec 2010

Pimco boss Mohamed El-Erian upgraded his growth forecast for America on the same day 10-year yields hit a six-month high.

The chief executive of Pimco, which manages the world’s biggest bond fund, said on Thursday that he sees the US economy growing 3pc to 3.5pc in the fourth quarter of next year from the same period of this year.

“The US is using fiscal and monetary policy to try to attain escape velocity for the economy,” El-Erian told Bloomberg. “What we don’t know yet is whether that will be enough not just to change the economy’s trajectory for one year but to place it on a medium-term sustainable path. What the policy makers are doing is kicking the can down the road in response to the symptoms of the new normal [the changed state of the world economy after the recession], but they’re not yet changing the medium-term dynamics.”

10 December 2010 Last updated at 13:53

Oil demand rises on global economic recovery, says IEA

Oil demand will be higher than expected in 2011 as global economic recovery speeds up, according to a report.

The International Energy Agency lifted its demand forecast for next year and raised its projections for consumption to 2015, citing stronger US growth.

The IEA now expects oil demand in 2011 to rise by 1.3 million barrels per day (bpd), some 260,000 bpd more than previously forecast.

Crude prices hit $90 a barrel this week, the highest for two years.

The Paris-based IEA, which advises governments on energy, said the recent price spike was most likely due to a rise in consumption in the third quarter of 2010 from the US and Europe.

It also raised its estimate for daily demand in 2010 by 2.5 million bpd, about 130,000 bpd more than previously forecast.

The IEA report said: "Although economic concerns remain skewed to the downside, not least if current high prices begin to act as a drag on growth, more immediately demand could surprise to the upside."

According to its medium-term projections, the IEA said world oil demand for 2009-2015 would grow by an average of 1.4 million bpd each year, higher than its previous forecast made in June.

As you might expect, old fashioned sceptical Graeme isn’t so sure. All the new money creation is fuelling stock and commodities bubbles, and a great global surge of food and energy inflation but little else it seems to me. The Baltic Dry Index has halved to 2095 since May, a sure sign that global industry is sick. Unemployment is stubbornly high in the USA, with long term unemployment still rising, and now millions about to get tossed off the benefits wagon. In Europe, austerity programs and riots are the new norm, as people accustomed to a free lunch hate the idea of being put on a bread and water diet. Now interest rates have started to rise….. I still see 2011 as trouble ahead, with the all too likely prospect on multiple fiat currency crises.

"Gold is forever. It is beautiful, useful, and never wears out. Small wonder that gold has been prized over all else, in all ages, as a store of value that will survive the travails of life and the ravages of time."

James Blakely

With the NY Fed targeting stock markets via QE programs, in a vain attempt to recreate 2003-2007s casino capitalism, 1990s style stock market casino capitalism is back in style in China. Why do I think that this has an all too familiar ending? Below the NY Times covers the rise of Canadian run, US stock momentum trading in China. On dying fiat currency, is casino capitalism great or what? On one side, the great vampire squids trading programs illegally front running the order stream, but with no enforcement of the law. On the other side, the Chinese order stream of degenerate, inexperienced momentum gamblers, desperate to make a fast buck and move on. In the middle, the US Fed desperate to recreate the illusion of prosperity by pushing US stocks higher by electronically creating new money and using it to permanently goose US stock prices. Stay long precious metals for the inevitable day that this all goes wrong.

"If you bet on a horse that's gambling. If you bet you can make three spades, that's entertainment. If you bet cotton will go up three points, that's business. See the difference."

Blackie Sherrod, gambler.

Day Trading Still Alive, Outsourced to China

By DAVID BARBOZA Published: December 9, 2010

BEIJING — Before the opening bell sounded on the New York Stock Exchange on a recent Tuesday, a group of fresh college graduates clocked in at a small trading firm on the outskirts of this capital city.

They were hired to engage in rapid-fire stock trading with some of the world’s most powerful investment houses in New York, London and Tokyo, and they were instructed to be alert.

Mr. Chan’s day trading shop is one of many that have sprung up in and around China’s major cities in recent years. Trading firms based in the United States and Canada are recruiting inexpensive workers in China and teaching them to engage in speculative trading — which means repeatedly buying and selling shares listed on the New York Stock Exchange and Nasdaq, hoping for quick profits.

By some industry estimates, as many as 10,000 people in China are doing speculative day trading of American stocks — mostly aggressive young men working the wee hours here, from 9:30 p.m. to 4 a.m., often trading tens of thousands of shares a day.

“Trading groups have exploded into China,” says Stephen Ehrlich, chief executive at Lightspeed Financial, a New York company that sells trading software to firms operating in China.

China prohibits its citizens from using Chinese currency to buy or sell shares of companies listed on foreign stock exchanges, though there appears to be no prohibition against trading stocks for an account owned by a foreign entity.

That legal gray area has enticed several American and Canadian trading firms to set up shop here, at least partly to cater to wealthy clients seeking more diverse investment options.

Securities experts are puzzled by the operations. They question how the firms can profit by using inexperienced traders. They also wonder aloud whether the use of traders in China violates American and Canadian securities laws.

“This is a jurisdictional mess for the U.S. regulators,” says Thomas J. Rice, an expert in securities law at Baker & McKenzie. “Are these Chinese traders essentially acting as brokers? If they are they would need to be registered in the U.S.”

Officials at the Securities and Exchange Commission and their counterparts in Canada and China declined to comment when asked about the growth of day trading in China. The New York Stock Exchange and Nasdaq also declined to comment.

----Peter Beck, a founder of Swift Trade, a Canadian firm with about 1,500 traders in China, said his operation was thriving and that the firm got a share of the trading profits.

“Our clients — they open an office, give us the money and then hire people to trade for them. That’s our structure,” he said in a telephone interview.

Swift Trade is considered one of the pioneers in the outsourcing of day trading. It grew initially by offering brokerage services in Canada and then by hiring Canadians to trade the firm’s capital from its Toronto headquarters. The company offered modest salaries to traders along with profit-sharing deals.

-----At a Beijing affiliate of Title Trading, the manager — who asked not to be named because he worries about the chances of finding another job if his operation fails — said he moved here from Canada because of the advantages of operating a trading desk with Chinese who were willing to start trading for little or no salary.

“Before, when a trader could earn $4,000 to $5,000 a month, Canadians wanted to do it,” he said. “But if it’s $1,000 they won’t. So it’s like anything else: outsource to China.”

College graduates typically earn $300 to $400 a month in China, but labor experts here say that as the job market for white-collar workers has weakened, more of them have been willing to take their chances in jobs with no guaranteed pay but with opportunities to share in profits.

If the traders make a profit, they keep between 10 and 50 percent, with the rest split between the trading firm and the investor. (If the traders produce a loss, they risk the firms’ clients and possibly their own jobs.)

John C. Coffee Jr., a securities law expert at Columbia University, says the arrangement amounts to a huge and odd brokerage fee.

-----For their part, the trading firms say they have unique trading strategies that give them an advantage. Some say they use sophisticated risk management software that can, for example, interrupt trades after a series of losses to prevent large losses in a single day. But they concede that losses can mushroom.

Still, the growth of trading here suggests someone is making money — and many trading houses say they are generating huge trading volume. Mr. Chan at Lazer Trade, for instance, says his branch office, with about 20 employees, trades up to five million shares a day.


"To prefer paper to gold is to prefer high risk to lower risk, instability to stability, inflation to steady long term values, a system of very low grade performance to a system of higher, though not perfect performance."

William Rees-Mogg


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