Friday, 28 January 2011

A Wedge of Black Swans Arrive.

Baltic Dry Index. 1186 -48

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

Once again, recall the story of banks hiding explosive risks in their portfolios. It is not a good idea to trust corporations with matters such as rare events because the performance of these executives is not observable on a short-term basis, and they will game the system by showing good performance so they can get their yearly bonus. The Achilles’ heel of capitalism is that if you make corporations compete, it is sometimes the one that is most exposed to the negative Black Swan that will appear to be the most fit for survival.

Nassim Taleb. The Black Swan.

One after another they fly in and land. Suddenly we are inundated with black swans. In economics, black swans are not birds we like to see. Stay long precious metals. One black swan is bad enough, God has sent us a great wedge of them. Yesterday the Baltic Dry Index which is a sipping index of bulk goods like iron ore, coal and grains, broke below 1200. In our global economy it has been on a wild ride reflecting the ups and downs of recent years. From a high of 11,793 on May 20, 2008, it collapsed to 663 on December 5, 2008 as world trade locked up after the banksters and Wall Street vampire squids nearly crashed the global economy. From that low point it managed to rise again to 4,600 as central bank global stimulation became the order of the day, lead by China. Now it has plunged back to barely double 2008’s low. Part of the reason is new ships that were ordered during the boom coming on-stream. Part is the disruption to the coal trade in particular by the flooding in Australia. Part is the recent bankruptcy of the shipping company Korea Line. But a part is also a sudden slowdown in world trade. Inventory rebuilding has probably reached its end. A large part of the recent “green shoots” “recovery” is ending. This black swan is troublesome. Not to worry it will rebound once Australia’s coal mines start exporting again, won’t it? Yes, but that will be little comfort if inventory restocking has already reached its peak.

Below, some of the other black swans that just flew in. Greenspan – Bernanke’s ficticious bankster economy built on fraud, is about to get tested again.

"It is inherently extraordinarily difficult to know whether an asset's price is in line with its fundamental value. It's not obvious to me in any case that there's any large misalignments currently in the U.S. financial system."

Dr. Bernanke. November 16, 2009

Japan Credit Rating Cut by S&P on Absence of Strategy to Curb Debt Levels

By Toru Fujioka and Aki Ito - Jan 27, 2011 2:05 PM GMT

Japan’s credit rating was cut for the first time in nine years by Standard & Poor’s as persistent deflation and political gridlock undermine efforts to reduce a 943 trillion yen ($11 trillion) debt burden.

The world’s most indebted nation is now ranked at AA-, the fourth-highest level, putting the country on a par with China, which likely passed Japan last year to become the second-largest economy. The government lacks a “coherent strategy” to address the nation’s debt, the rating company said in a statement. The outlook for the rating is stable, S&P said.

The yen and bond futures fell on concern the downgrade will push up the cost of borrowing for Japan, where public debt is about twice the size of gross domestic product. Vice Finance Minister Fumihiko Igarashi this week said the government must fix its finances to avoid a debt crisis that could trigger a “global depression.”


Moody's Says Time Running Out for U.S. as S&P Cuts Japan

By Christine Richard - Jan 28, 2011 4:07 AM GMT

Moody’s Investors Service said it may need to place a “negative” outlook on the Aaa rating of U.S. debt sooner than anticipated as the country’s budget deficit widens.

The extension of tax cuts enacted under President George W. Bush, the chance that Congress won’t reduce spending and the outcome of the November elections have increased Moody’s uncertainty over the willingness and ability of the U.S. to reduce its debt, the credit-ratings company said yesterday.

“Although no rating action is contemplated at this time, the time frame for possible future actions appears to be shortening, and the probability of assigning a negative outlook in the coming two years is rising,” wrote Steven Hess, a senior credit officer in New York and the author of the report. The rating remains “stable,” according to the report.

Oil Heads for Biggest Weekly Drop Since August on Slowing Demand

By Ben Sharples and Ann Koh - Jan 28, 2011 5:32 AM GMT

Oil headed for its biggest weekly decline in New York since August amid speculation that prices are too high and may derail the economic recovery in the U.S., the biggest crude-consuming nation.

Futures fell for a second day on signs that the Organization of Petroleum Exporting Countries is starting to increase output to cap prices. Brent crude rose, extending its record premium to New York oil. U.S. jobless claims increased more than forecast, Labor Department data showed yesterday. Crude supplies climbed four times more than analysts estimated last week as fuel demand dropped.

“Crude should be down near $80 a barrel given that world out there is awash with oil,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney. “Given that we don’t see anything adverse happening out there in the world that would see the need for a build in premium, then I can suggest it’ll remain pretty soft.”

Crude for March delivery lost as much as 53 cents, or 0.6 percent, to $85.11 a barrel, in electronic trading on the New York Mercantile Exchange, and was $85.55 at 1:27 p.m. Singapore time. Prices are down 6.4 percent this year.

Futures are 4 percent lower for the week, the biggest drop since the week ended Aug. 13.

-----Brent’s premium over Nymex-traded West Texas Intermediate widened to a record $12.42 a barrel from $8.49 a week earlier. Investors are buying Brent contracts as a buildup of supplies at Cushing, Oklahoma, the delivery point for New York-traded West Texas Intermediate oil, skews the U.S. grade’s reliability as an indicator of demand.

There are indications that some members of OPEC are raising output unilaterally, analysts at JPMorgan Chase & Co., led by New York-based Lawrence Eagles, said in a monthly report dated yesterday.

“We take that as a strong indication that the producer group does not want oil prices to rise too high, too quickly,” JPMorgan’s analysts said. “OPEC continues to supply the marginal barrel and therefore sets the price for crude oil.”


We end for the week watching Egypt, possibly the worst black swan of all. Is Egypt about to fall next week? What will it mean for the west if Egypt does switch from dictatorship to democracy? Will the west get another Iran or another Tunisia? How do you occupy and pacify a city the size of Cairo? The west’s domination game from Morocco to Pakistan is in danger of imploding. Unemployment, food price inflation and modern technology, have stirred up the masses to demand change. As the Shah of Iran found out back in 1979, having ridden the tiger for the west for the last 30 years, getting off without getting eaten, is no easy thing to do.

Robert Fisk: Egypt's day of reckoning

Mubarak regime may not survive new protests as flames of anger spread through Middle East

Friday, 28 January 2011

A day of prayer or a day of rage? All Egypt was waiting for the Muslim Sabbath today – not to mention Egypt's fearful allies – as the country's ageing President clings to power after nights of violence that have shaken America's faith in the stability of the Mubarak regime.

Five men have so far been killed and almost 1,000 others have been imprisoned, police have beaten women and for the first time an office of the ruling National Democratic Party was set on fire. Rumours are as dangerous as tear gas here. A Cairo daily has been claiming that one of President Hosni Mubarak's top advisers has fled to London with 97 suitcases of cash, but other reports speak of an enraged President shouting at senior police officers for not dealing more harshly with demonstrators.

Mohamed ElBaradei, the opposition leader and Nobel prize-winning former UN official, flew back to Egypt last night but no one believes – except perhaps the Americans – that he can become a focus for the protest movements that have sprung up across the country.

Already there have been signs that those tired of Mubarak's corrupt and undemocratic rule have been trying to persuade the ill-paid policemen patrolling Cairo to join them. "Brothers! Brothers! How much do they pay you?" one of the crowds began shouting at the cops in Cairo. But no one is negotiating – there is nothing to negotiate except the departure of Mubarak, and the Egyptian government says and does nothing, which is pretty much what it has been doing for the past three decades.

People talk of revolution but there is no one to replace Mubarak's men – he never appointed a vice-president – and one Egyptian journalist yesterday told me he had even found some friends who feel sorry for the isolated, lonely President. Mubarak is 82 and even hinted he would stand for president again – to the outrage of millions of Egyptians.

The barren, horrible truth, however, is that save for its brutal police force and its ominously docile army – which, by the way, does not look favourably upon Mubarak's son Gamal – the government is powerless. This is revolution by Twitter and revolution by Facebook, and technology long ago took away the dismal rules of censorship.

Mubarak's men seem to have lost all sense of initiative.


"Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium."

Murray N. Rothbard

At the Comex silver depositories Thursday, final figures were: Registered 44.24 Moz, Eligible 60.60 Moz, Total 104.84 Moz.


Crooks and Scoundrels Corner.

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

Today the totally doubled over. Would you buy a used car from this man?

"I expect there will be some failures. I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system."

Dr. Bernanke. February 29th, 2008

Only one US bank was safe from collapse during financial crisis, says Fed's Ben Bernanke

Only one of America's major financial institutions was not at risk of collapse during the financial crisis that swept Wall Street in 2008, according to previously private remarks the chairman of the Federal Reserve made to a panel investigating the crisis.

By Richard Blackden 10:12PM GMT 27 Jan 2011

The Financial Crisis Inquiry Commission released comments Ben Bernanke made in a private interview alongside its final report on Thursday.

"If you look at the firms that came under pressure in that period... only one... was not at serious risk of failure," Mr Bernanke told the commission. "Even Goldman Sachs, we thought there was a real chance that they would go under." The material disclosed by the commission did not identity which institution the Fed chairman believed could have withstood the turmoil.

The commission was established by Congress in May 2009 to provide an authoritative explanation of what caused the country's worst financial crisis since the Great Depression. However, the commission has been marred by political infighting among its members, and only the six Democratic members endorsed the final report.

The report concluded that the crisis was avoidable and laid much of the blame at the feet of regulators, including the Federal Reserve.

"We do not accept the view that regulators lacked the power to protect the financial system," the report argues. "They had ample power in many arenas and they chose not to use it."

Alan Greenspan, Mr Benanke's predecessor, came in for particular criticism for championing less regulation. "The government permitted financial firms to pick their preferred regulators in what became a race to be the weakest supervisor," the report said.

Meanwhile, Moody’s said its timeframe for possibly placing a negative outlook on the Aaa rating of US Treasury bonds is shortening as the country’s deficit widens

"Thank God For Bank Bailouts"

Proper Charlie Munger.

Another Friday and from a western point of view, another bleak weekend. The middle eastern pressure cooker looks set to blow up at any moment, toppling the west’s placemen with no alternatives to hand. From Japan, to America, to Europe, our insolvent banks seem to be headed towards a repeat of 2008. In America, out of control deficits and an out of control QE program, seem likely to crash the fiat dollar reserve currency system as we know it. There is nothing on the horizon to replace it. Food and fuel inflation is loose in the global economy, and we are one crop failure away from price famine joining the twin horsemen of social destruction. We seem to have arrived at one of history’s pivotal decades. It is 410 AD, the Roman Legions and civilization have left. The Roman fleet no longer patrols the North Sea and the Channel. Angles, Saxons and Jutes are pouring in to replace them. Horsa and Hengist are about to appear. Have a great weekend everyone.

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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