Tuesday, 4 January 2011

Flood Inflation Push.

Baltic Dry Index. 1773

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

"I never think of the future. It comes soon enough."

Albert Einstein.

Are Australia’s floods about to give a big push to global inflation? My guess is that the flooding will, with unpredictable consequences around the world. Stay long precious metals, an unexpected bout of food and fuel inflation just might trigger “the next Lehman”. Austerity packages, higher taxes and higher food and fuel inputs, yet more reasons for the Fed to push stock prices higher. After all, no one else is a buyer in these circumstances. Below, the latest news from Australia.

JANUARY 4, 2011

Flooding Worsens in Australia

MELBOURNE—The Australian military began rushing supplies to a town slowly being swamped by floodwaters Monday as authorities warned that floods devastating large parts of Queensland state are set to worsen in some areas.

A proper assessment of damage is expected only after the floodwaters, which follow torrential rains associated with the La Nina weather pattern, recede. But many expect damage to run to billions of dollars.

Floods affecting an area the size of France and Germany combined have forced thousands of residents to flee their homes, impacting as many as 200,000 people.

---- Coal mining, haulage and export is the major industry in central Queensland, a major global source of coking coal used in steelmaking. Central Queensland and the Hunter Valley in New South Wales are the heartland of Australia's US$51 billion-a-year coal export industry.

The floods have forced many of the biggest miners—including BHP Billiton Ltd., Rio Tinto Ltd. and Anglo American PLC—to stop production and cancel deliveries to key customers.

"We have three quarters of our coal fields unable to operate and unable to supply markets," Queensland Premier Anna Bligh told Australian Broadcasting Corp. television.

"There is likely to be a significant long-term effect of that, not only nationally, but also internationally," she said, noting the state provides half of the world's supply of coking coal, a key ingredient in steelmaking. "So there is a remarkable problem out there in the mining industry...They will have a long, slow climb back to full production," she said.

"We are going to see an economic impact, there's no doubt about that," Prime Minister Julia Gillard told ABC Radio Monday. "When floodwaters recede, we're going to see a lot of damage to roads, to bridges, to schools, to the community facilities that everybody relies on. We can't assess what that's going to cost until we can see the damage."


Australian floods raise fears of wheat shortage

Severe flooding in Australia could lead to an increase in the price of bread on supermarket shelves due to global shortages of wheat.

By James Hall 7:00AM GMT 04 Jan 2011

US wheat futures rose heavily yesterday as concerns grew that Australian wheat growers will be unable to deliver their harvests as a result of the devastation. Australia is the world's fourth largest exporter of wheat after the USA, Canada and Russia.

At the Chicago Board of Trade, the price of wheat for March delivery rose over 3pc, at one point hitting $8.25 (£5.30) a bushel, the highest since last August. Warnings over impending cold weather in the US were also cited as reasons for the rise.

----The Queensland area of Australia has been hit by calamitous flooding. Andrew Fraser, Queensland's State Treasurer, described the floods as a "disaster of biblical proportions". Water is covering land the size of France and Germany. It is expected to reach over 30 feet deep in some areas in coming days.

---- Early last month it was estimated that there were eight to 10 million tonnes of wheat and barley crops still waiting to be harvested in paddocks in Queensland and New South Wales. Local reports last month said that the rain may have cost grain growers in Victoria, New South Wales and Queensland between $1bn (£660m) and $2bn in lost revenue.


Next, “the next Lehman” does the first of many put back deals on its dodgy “triple-A” mortgage backed securities. The market reacted as if this is the end of the put backs rather than the start. Not to worry though, BOA can always get more cash from the Fed. There’s plenty more where that comes from. Stay long precious metals.

JANUARY 3, 2011, 10:48 A.M. ET

Bank of America to Buy Back Bad Loans From Fannie, Freddie

Bank of America Corp. expects to take a provision of about $3 billion in the fourth quarter to buy back bad loans from Freddie Mac and Fannie Mae that were issued by its troubled Countrywide Financial unit.

The move represents the latest effort by the Charlotte-based banking giant, which acquired mortgage-originator Countrywide in 2008, to respond to the housing crisis. Countrywide's mortgages turned into some of the worst mortgages issued during the crisis and, ever since Bank of America bought the lender, the bank has had to handle growing loan losses.

The lender also said it has received confirmation from the Federal Reserve that the company fulfilled its commitment to boost its equity by $3 billion, a condition of its repurchase $45 billion in preferred stock in December 2009 acquired as part of the Troubled Asset Relief Program. It faced a year-end deadline to raise the equity and sought to raise the capital by selling assets.

If it hadn't done so, it might have had to pay some employees' bonuses in stock instead of cash. The bank also had warned investors it might need to make a dilutive share offering to raise the capital. Instead, it sold such assets as 51.2 million shares in BlackRock Inc. and the right to purchase additional shares in China Construction Bank Corp.

As part of the loan repurchases, Bank of America's home loans and insurance business is expected to post a $2 billion writedown in the quarter. The bank said the charge will have no impact on its Tier 1 or tangible equity ratios.

"These actions resolve substantial legacy issues in the best interest of our shareholders," Chief Executive Brian Moynihan said. "Our goals remain the same: put these issues behind us; focus on serving customers and clients; and continue to help distressed homeowners facing difficult times."

The agreement includes a cash payment of $1.28 billion to Freddie and $1.52 billion to Fannie, both of which were made Friday. Executives from both companies said the agreement is in the best interests of all parties.

Last week, Allstate Corp. sued Countrywide over $700 million in residential mortgage-backed securities in which the insurer had invested. The suit contains similar allegations other investors have raised with mortgage creators, namely that lax underwriting standards are to blame for the collapse of the investment vehicles.


Moynihan Fights Fires at Bank of America Amid Investor Doubt in Book Value

By Hugh Son - Jan 4, 2011 2:01 AM GMT

Brian T. Moynihan spent his first year as Bank of America Corp.’s chief executive officer putting out fires smoldering from the financial crisis. In 2011, he’ll do it all over again.

Since succeeding Kenneth D. Lewis on Jan. 1, 2010, Moynihan, 51, has struggled to stanch loan losses and a surge of litigation at the biggest U.S. lender while trying to mend relations with customers, regulators and investors. He paid $2.8 billion last week to government-owned companies Fannie Mae and Freddie Mac to settle claims the bank sold them defective mortgages, a major step toward resolving liabilities taken on with the 2008 purchase of Countrywide Financial Corp.

---- The company’s shares were down 11 percent last year, the second worst in the 24-company KBW Bank Index. Only Bridgeport, Connecticut-based People’s United Financial Inc. fared worse. Citigroup rose 43 percent. Bank of America, which repaid $45 billion in U.S. bailout funds in 2009, traded by year-end for about 60 percent of book value, reflecting investor doubts that assets are properly stated. The industry average is 94 percent.

“They’re the most troubled large bank -- it’s an unfortunate place to be,” said Christopher Whalen, a former Federal Reserve Bank of New York analyst and co-founder of Institutional Risk Analytics in Torrance, California.

The announcement yesterday of last week’s settlement, which Whalen said was “clearly a gift,” sent Bank of America up 6.4 percent to $14.19 in New York Stock Exchange composite trading, the biggest increase in almost eight months.


Below, today’s Journal on “let’s make a deal” and US banks. According to the article, it seems to be “let’s make a sweetheart deal”, given the level of fraud and perjury involved all round.

Foreclosure Deals to Start With Big Lenders, Iowa Says

By Margaret Cronin Fisk and Prashant Gopal - Jan 4, 2011 5:01 AM GMT

The five largest loan servicers, including Bank of America Corp. and JPMorgan Chase & Co., may be the first to settle with the 50 state attorneys general probing foreclosure practices, Iowa Attorney General Tom Miller said.

No settlements have been reached yet, Miller said yesterday in a phone interview. The other three are Citigroup Inc., Wells Fargo & Co. and Ally Financial Inc., said Miller, the leader of the 50-state investigation. The five have 59 percent of the U.S. market, Miller said.

“What we’re looking at is five separate agreements with the five largest servicers,” Miller said. “We’re still a ways away” from reaching agreements, he said. “We’re working very hard to figure out what should be in the settlement.”

All 50 U.S. states are investigating whether banks and loan servicers used false documents and signatures to justify hundreds of thousands of foreclosures. The probe, announced Oct. 13, came after JPMorgan and Ally Financial’s GMAC mortgage unit said they would stop repossessions in 23 states where courts supervise home seizures, and Bank of America, the largest U.S. lender, froze foreclosures nationwide.

Tom Kelly, a spokesman for JPMorgan in New York, declined to comment. Shannon Bell, a spokeswoman for New York-based Citigroup, declined to comment. Gina Proia of Detroit-based Ally declined to comment. Shirley Norton, a spokeswoman for Charlotte, North Carolina-based Bank of America, declined to comment.

---- The probe has since widened to include other mortgage practices, with attorneys general suggesting a potential resolution should include improving the loan modification process, barring foreclosures when people are modifying loans and creating a general fund to compensate homeowners who may have been victims of wrongful foreclosures.


In EU news, the Brussels bigwigs don’t like Hungary running the EU presidency for the next six months. A season of clashes between the two, seems likely, as more and more EU nations go off the rails.

JANUARY 4, 2011

European Probe Fuels Tensions With Hungary

BUDAPEST—The European Union is investigating the legality of special "crisis" taxes imposed by Hungary on a handful of industries amid an escalating feud between the country's new government and its increasingly outspoken critics elsewhere in Europe.

Tensions have mounted as Hungary takes over the rotating presidency of the EU and could complicate the regional bloc's efforts to make progress on a series of important measures aimed at bolstering the Continent's economic recovery.

The probe of the taxes, which have fallen most heavily on large, foreign companies, comes on top of criticism of a new Hungarian media law by officials of other EU states and members of the European Parliament, who say it goes against the EU's commitment to press freedom.

Hungary's government has dismissed the complaints, saying the new temporary taxes, which are to last through the end of 2012, and the media law are in line with the spirit and the letter of EU treaties and regulations.

----- Senior European officials, including the head of the EU's executive branch, José Manuel Barroso, and other members of the European Commission are to meet with Hungarian Prime Minister Viktor Orban this week in Budapest to mark the start of Hungary's six-month presidency.

The agenda for the talks hasn't been set, but "it is very likely that someone will raise these questions," Olivier Bailly, an EU spokesman, said Monday.

In some ways the dispute between Budapest and Brussels goes to the heart of a debate over the proper distribution of power between national governments and the central authorities of the European Union.

"The EU basically has no right to interfere" in these sorts of policy decisions, says Hungary's Mr. Kovacs. The media law, for example, he says, "is a domestic matter."



"The international monetary order is more precarious by far today than it was in 1929. Then, gold was international money, incorruptible, unmanageable, and unchangeable. Today, the U.S. dollar serves as the international medium of exchange, managed by Washington politicians and Federal Reserve officials, manipulated from day to day, and serving political goals and ambitions. This difference alone sounds the alarm to all perceptive observers."

Hans F. Sennholz

At the Comex silver depositories Monday, final figures were: Registered 45.71 Moz, Eligible 58.83 Moz, Total 104.54 Moz.


Crooks and Scoundrels Corner.

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

No Crooks today, just this interesting news out of China. China, it seems, is joining the ranks of those nations with a nuclear recycling ability. I wonder what they do with the recovered plutonium?

China Claims Nuclear Fuel Reprocessing Breakthrough

Monday, January 3rd, 2011 at 7:00 am UTC

Chinese state television says scientists have achieved a technological breakthrough that will ensure the country's supply of nuclear fuel for the next 3,000 years.

State television said Monday the breakthrough was achieved at a China National Nuclear Corporation facility in the remote Gobi desert. The new technology makes it possible to re-use irradiated fuel from nuclear reactors, meaning the country can obtain 60 times the value from the same amount of fuel.

China is planning a major expansion of nuclear power as part of its drive to cut back greenhouse emissions by reducing its heavy reliance on coal.

However officials are concerned that they will be increasingly dependent on foreign sources of uranium. Without a reprocessing program like that announced Monday, China's uranium reserves would be expected to last for about 50 to 70 years.


"All previous attempts to base money solely on intangibles such as credit or government edict or fiat have ended in inflationary panic and disaster."

Donald Hoppe

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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