Thursday, 6 January 2011

CES Las Vegas.

Baltic Dry Index. 1621 -72

LIR Gold Target by 2019: $30,000. Revised due to QE.

"The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice."

Henry Hazlitt

Today’s update will be brief, I must take to the road again in damp, cold, grey, Southeast England. We end with this year’s Consumer Electronics Show in Las Vegas. For those interested in the latest must have gadgets for 2011, scroll down and click on the link. But first this, Brazil is opening a new front in the currency wars. Like King Canute taking on the sea, Brazil’s finance minister has promised to stop Bernoccio and Giethner from “melting the dollar”.

"It is the greenback which is unstable, and not bullion."

Dr. Franz Pick

Brazil pledges to stop US 'melting the dollar'

Brazil has sounded a new note of warning in the international "currency war" by pledging not to allow the United States to "melt the dollar".

By By Robin Yapp in Sao Paulo 5:27PM GMT 05 Jan 2011

Guido Mantega, the Brazilian finance minister, raised the prospect of introducing greater controls on short-term flows of speculative capital into his country.

The Brazilian real has risen more than 35pc against the dollar since early 2009 leading some economists to label it the most over-valued currency in the world.

There is widespread concern about the effects of a weaker dollar on the competitiveness of emerging markets, many of which have seen foreign investment send their currencies soaring.

"We're not going to allow our American friends to melt the dollar," said Mr Mantega, who views the US government's move to pump $600bn (£387bn) into its economy as an unfair attempt to help exports

"There are infinite measures that we can take. One of them is to manage the entry of speculative capital in the short-term."

His comments came after Chile's central bank announced a plan to buy $12bn (£7.7bn) of US dollars on international markets on Monday in an attempt to stem its own currency appreciation.

The Chilean peso has gained by more than 17pc cent against the US dollar since June, fuelled by increases in the price of copper, which is Chile's biggest export.

It was Mr Mantega who coined the term "currency war" last year as he voiced concerns that Brazilian exports were being damaged. In October he tripled the tax on foreign investments in some bonds to six per cent, a measure he said had since been "effective".

Brazil plans to make "considerable" cuts in government spending which would help weaken the real and allow interest rates to be cut at some point from the current level of 10.75pc.

Below, with news of hidden US subsidies like this, Guido Mantega might as well save his breath. One way or another the US has embarked on a policy of unrestricted issuing of new dollars. Once on QE it’s impossible to get off without triggering the event QE was adopted to prevent in the first place. But QE forever guarantees a forever “melting” dollar. Stay long gold and silver, and enjoy the spectacle of Mr. Mantega tilting at windmills.

The modern mind dislikes gold because it blurts out unpleasant truths."

Joseph Schumpeter

BofA Freddie Mac Putbacks Resolved for 1¢ on $

By Barry Ritholtz - January 4th, 2011

Bank of America settled numerous claims with Fannie Mae for an astonishingly cheap rate, according to a Bloomberg report.

A premium of $1.28 billion was paid to Freddie Mac to resolve $1 billion in claims currently outstanding. But the kicker is that the deal also covers potential future claims on $127 billion in loans sold by Countrywide through 2008. That amounts to 1 cent on the dollar to Freddie Mac.

Imagine if you had a $500,000 mortgage, and you got to settle it for $5,000 — that is the deal B of A appears to have gottem from Freddie Mac.

B of A also paid $1.52 billion to Fannie Mae to resolve disputes on $3.1 billion in loans (~49 cents on the dollar). They remain liable for $2.1 billion in repurchase requests, as well as any future demands from Fannie Mae.

My biggest complaint about the GSEs post government takeover is that they have been used as a back door bailout of the banks. This latest deal reconfirms that view.

Its a wonder B o A didn’t rally further than the 6.7% it surged yesterday . . .

In European news, the EU’s new best buddy is promising relief from the east. Since there is no free lunch this side of heaven, what do they want in return for EU “relief”.

Charm Offensive 01/05/2011

China Promises Support for Euro Zone

China's leadership has launched a charm offensive aimed at Europe. The country's vice premier, who is visiting Spain and Germany this week, has promised that Beijing will continue buying up government debt to support the troubled euro zone. He has also called for more bilateral trade.

There may be no end in sight for Europe's sovereign debt crisis, but at least one country still believes in the euro. The Chinese leadership has promised its support for the euro zone in its hour of need as part of a charm offensive aimed at strengthening ties with the European Union.

In a guest editorial published in Wednesday's edition of the German daily Süddeutsche Zeitung, Chinese Vice Premier Li Keqiang promised that China would support the EU in the fight against the euro zone's sovereign debt crisis. "China's support of the EU's financial stabilization measures and its help to certain countries in coping with the sovereign debt crisis are all conducive to promoting full economic recovery and steady growth," he wrote.

On Monday, he published another guest editorial in the Spanish newspaper El Pais ahead of a visit to Spain, in which he said China would continue to buy Spanish bonds. "We have confidence in the European financial market, and, in particular, the Spanish financial market," he wrote. The promise of help is likely to be welcome in Spain, which some observers fear may have to ask for help from the EU's rescue fund, as Ireland and Greece have already done.

In recent months, China, which has foreign-exchange reserves worth an estimated $2.5 trillion, has been buying up bonds from troubled euro-zone members such as Greece and Portugal. Beijing is seen as wanting to diversify its investments out of fears of a devaluation of the US dollar. Currently around 70 percent of its foreign-exchange reserves are believed to be in the US currency.,1518,737897,00.html#ref=nlint

Relief for tiny Portugal turned out to be very little relief at all. Perhaps back in Beijing and Shanghai, the buyers didn’t know that Macau’s former owner was desperately trying to raise cash.

Portugal's borrowing costs jump on deficit fears

Portugal found its six-month borrowing costs have soared, when the country became the first of the high-deficit eurozone nations to test investor demand for its debt today.

2:08PM GMT 05 Jan 2011

The Portguese government sold €500m (£423.9m) of bonds repayable in July, with a yield, or interest cost, of 3.686pc.

That compared with a yield of 2.045pc in an auction of bonds of a similar duration in September, and the 0.592pc yield when Portugal sold six-month bonds a year ago.

Investors have been looking around the eurozone for the next likely candidate to require financial aid, since Greece had to seek a bailout in the spring, and Ireland gave in to demands to take loans from the European Union and International Monetary Fund to prop up its banks in November.

Portugal and Spain were seen as strong possibilities, although both nations have said they won't need bailouts, and are taking action to reduce government spending through public sector wage cuts and, in Portugal, raising VAT to 23pc.

Portugal posted the biggest budget shortfall among the 16 countries using the euro in 2009 after Ireland, Greece and Spain.

----Today’s auction shows investors are charging Portugal seven times more than they demand from Germany for six-month money. Germany also held a bond auction today.

“Yields are tremendously high for a six-month bill, still showing that Portugal has no place to hide on the curve,” said David Schnautz, a strategist at Commerzbank AG in London. “The first real test will be the bond auction, which can happen as soon as next week.”

Portugal doesn’t face any bond redemptions until April, with repayments that month and in June worth about €9.5bn. The nation’s debt agency estimates this year’s gross financing needs will be €3bn lower than in 2010, and plans to sell a new bond through banks in the first quarter.

Spain will sell €93.8bn of bonds this year, compared with €93.5bn in 2010, while Italy’s borrowing needs will decline to €225bn from €249bn, according to figures compiled by Barclays Capital.

We end for today with a look at the future. At least, a look at the future as displayed at “Geekopolis”, the WSJs term for the Consumer Electronics Show in Las Vegas.

JANUARY 6, 2011

Postcards From Geekopolis

Products for 2011 Are New, Nifty; Who Knew Phones Needed Pagers?

Las Vegas

Big crowds—and big talk about new gadgets—are back at the Consumer Electronics Show, after two years in which the recession put a damper on the Las Vegas event, which runs Thursday through Sunday.

Companies are using relentless improvements in semiconductors and other components to make many of their gadgets smarter, sleeker and smaller. Unless the gadgets are TV sets. Then better means "bigger"—more than 7½ feet, in the case of the 92-inch 3-D TV that a unit of Japan's Mitsubishi Electric Corp. is showing off this week.

But for all their hyperbole about tablet PCs and smart phones, most of the products on display this year are refinements of existing ideas, rather than trendsetters that break new ground. Sometimes the main innovation is the price, as in the case of Vizio Inc.'s plan to sell a small 3-D TV for less than $300—a category where offerings routinely start at more than $1,000. Here's a sampling of the latest fare:


"There are about three hundred economists in the world who are against gold, and they think that gold is a barbarous relic - and they might be right. Unfortunately, there are three billion inhabitants of the world who believe in gold."

Janos Fekete

At the Comex silver depositories Wednesday, final figures were: Registered 45.71 Moz, Eligible 59.87 Moz, Total 105.58 Moz.


Crooks and Scoundrels Corner.

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

No crooks today, just another warning on arriving food inflation. In our new age of austerity and “melting” dollars, someone better have a better plan than “let them eat cake”. Stay long precious metals. If food inflation gets out of control, banksters and others will end up hanging from lampposts.

“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”

President Ronald Reagan.

World Food Prices Surge to Record, Passing Levels That Sparked 2008 Riots

By Rudy Ruitenberg - Jan 5, 2011 12:24 PM GMT

World food prices rose to a record in December on higher sugar, grain and oilseed costs, the United Nations said, exceeding levels reached in 2008 that sparked deadly riots from Haiti to Egypt.

An index of 55 food commodities tracked by the Food and Agriculture Organization gained for a sixth month to 214.7 points, above the previous all-time high of 213.5 in June 2008, the Rome-based UN agency said in a monthly report. The gauges for sugar and meat prices advanced to records.

Sugar climbed for a third year in a row in 2010, and corn jumped the most in four years in Chicago. Food prices may rise more unless the world grain crop increases “significantly” in 2011, the FAO said Nov. 17. At least 13 people died last year in Mozambique in protests against plans to lift bread prices.

“There is still, unfortunately, the potential for grain prices to strengthen on the back of a lot of uncertainty,” Abdolreza Abbassian, senior economist at the FAO, said by phone from Rome today. “If anything goes wrong with the South American crop, there is plenty of room for them to increase.”

“Inflation is the one form of taxation that can be imposed without legislation.”

Milton Friedman

The monthly Coppock Indicators finished December:

DJIA: +171 Down 7. NASDAQ: +238 Down 9. SP500: +165 Down 2.

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. December is the seventh down month, but the downward momentum has virtually stopped. I would put on (purchased) synthetic double options here for a breakout in either direction. Professional traders would adopt much more risky granted option strategies.

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