Friday 18 February 2011

Unstable.

Baltic Dry Index. 1292 +21

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

“Here is my first principle of foreign policy: good government at home.”

W.E. Gladstone. 19th Century Prime Minister.

Today as we head into another tumultuous weekend in the Middle East, a picture of our increasingly unstable world. Stay long precious metals. Events in the Middle East have the potential for our western centric world to come crashing down, but from China’s out of control property bubble, to America’s insolvent banks financed by the Fed’s unendable QE programs, our inter-related global economy has never looked more unstable. For now thankfully, middle eastern oil is still flowing uninterrupted to the rest of the world. We open today with a warning from Saudi Arabia. For now complacency still rules in the west.

“The task of the leader is to get his people from where they are to where they have not been.”

Henry Kissinger.

Saudi prince Talal warns of uprising threat

From: AFP February 18, 2011

A SENIOR member of the Saudi royal family has warned that the oil-rich country could be harmed by the uprisings sweeping the Arab world unless it speeded up reforms.

Prince Talal bin Abdul-Aziz Al Saud told BBC Arabic that "anything could happen" if King Abdullah Bin Abdul Aziz did not proceed with a program of political transformation.

"King Abdullah ... is the only person who can carry out these reforms," the prince told the broadcaster.

"On his departure, may that be in many years to come, latent trouble will surface and I have warned of this on many occasions. We need to resolve the problems in his lifetime," the prince added.

Talal added that if Saudi authorities "don't give more concern to the demands of the people, anything could happen in this country".

Talal has long called for reform in Saudi Arabia and formed the liberal political group "Free Princes Movement" in 1958 in reaction to the hostility between former kings Saud and Faisal.

More.

http://www.theaustralian.com.au/news/world/saudi-prince-talal-warns-of-uprising-threat/story-e6frg6so-1226008023428

In China, tired of not getting the respect it feels it deserves from America, China has started to play the US debtor card. Nothing good comes from this as the G-20 Finance Ministers open their bi-annual meeting in Paris.

“There is a Providence that protects idiots, drunkards, children and the United States of America.”

Count Otto von Bismarck.

China Flexes Muscles With US As Biggest Creditor: WikiLeaks

Published: Thursday, 17 Feb 2011 | 11:49 AM ET Reuters

Confidential diplomatic cables from the U.S. embassies in Beijing and Hong Kong lay bare China's growing influence as America's largest creditor.

As the U.S. Federal Reserve grappled with the aftershocks of financial crisis, the Chinese, like many others, suffered huge losses from their investments in American financial firms — from Lehman Brothers to the Primary Reserve Fund, the money market fund that broke the buck

The cables, obtained by WikiLeaks, show that escalating Chinese pressure prompted a procession of soothing visits from the U.S. Treasury Department.

In one striking instance, a top Chinese money manager directly asked U.S. Treasury Secretary Timothy Geithner for a favor.

In June, 2009, the head of China's powerful sovereign wealth fund met with Geithner and requested that he lean on regulators at the U.S. Federal Reserve to speed up the approval of its $1.2 billion investment in Morgan Stanley, according to the cables, which were provided to Reuters by a third party.

Although the cables do not mention if Geithner took any action, China's deal to buy Morgan Stanley shares was announced the very next day.

The two Treasury officials to whom the cables were addressed, Deputy Assistant Secretary for Asia Robert Dohner and Deputy Assistant Secretary for International Monetary and Financial Policy Mark Sobel, declined through a spokesperson to comment for this story.

The State Department also declined to comment.

China is America's biggest foreign lender, playing a crucial role in the U.S. Treasury auctions that allow Washington to borrow what it needs to keep its government running. At the same time, the United States is China's top export destination: America's trade deficit with the nation reached a record $273.1 billion in 2010.

Most economists describe the two economies as co-dependent.

http://www.cnbc.com/id/41643598

Below, yet another sign of a Chinese bubble economy racing away out of control. Nothing good comes from this when eventually the Chinese bubble bursts.

China's Home Prices Defy Curbs, Rising in 68 of 70 Cities

By Bloomberg News - Feb 18, 2011 4:39 AM GMT

China’s January new home prices rose from a year earlier in all but two of the 70 cities monitored by the government, defying property curbs to keep housing affordable.

New home prices in the capital Beijing advanced 6.8 percent in January from last year, while Shanghai climbed 1.5 percent, the statistics bureau said on its website today, initiating a new method of calculating prices. Haikou had the biggest gain, surging 21.6 percent, and 10 cities had increases exceeding 10 percent. Housing values in the southeastern city of Quanzhou and the western city of Nanchong fell.

China extended property curbs last month, including raising the minimum down payment for second-home purchases, telling local governments to set price targets on new properties, and introducing taxes for residential homes in Shanghai and Chongqing. The central bank raised interest rates on Feb. 8 for the third time in four months.

“The new data clearly shows home prices are still rising and the government curbs only suppressed transaction volumes,” said Jinny Yan, Shanghai-based economist at Standard Chartered Plc. “The ultimate problem is monetary policy -- the government should at least raise interest rates two more times this year because if the liquidity is not tightened, it would be impossible for home prices to fall.”

More

http://www.bloomberg.com/news/2011-02-18/china-s-new-home-prices-defy-curbs-rising-in-68-of-70-cities-in-january.html

In Paris, back at the unwieldy G-20 Finance Ministers meeting, rising inflation and the unstable Euro, plus the undervalued Yuan are the issues of the day. Few if any expect anything meaningful from this spring meeting in Paris. In theory, interest rates should now be rising in the EU, USA and UK. In practice, any move to raise interest rates beyond a token ¼% which is meaningless, will trigger turmoil in the bond and stock markets. Our central banks are now forced to stay behind the inflation curve. Social distress lies ahead, I think.

“Politics ruins the character.”

Count Otto von Bismarck.

G-20 Stung by Faster Inflation as Imbalance Dispute Rages

By James G. Neuger and Mark Deen - Feb 17, 2011 11:01 PM GMT

Group of 20 policy makers, at odds over smoothing over global economic imbalances, confront a new threat as higher inflation ripples from emerging markets to advanced economies.

A report of greater-than-expected U.S. inflation yesterday followed a jump in the European cost-of-living index to a two- year high and a pickup in Chinese prices, further fraying a tentative global consensus over how to sustain the recovery.

“We clearly need to keep inflation at bay,” French Finance Minister Christine Lagarde, host of today’s G-20 meeting in Paris, told Bloomberg Television’s Francine Lacqua. “Too much inflation is not going to be conducive to growth.”

Rising consumer prices, a byproduct of the recovery from the worst recession since World War II as commodity costs surge, have put higher interest rates back on the agenda as the rich world grapples with a debt overhang and developing countries try to escape the boom-bust syndrome.

U.S. year-on-year inflation accelerated to 1.6 percent in January, the highest since May, figures showed yesterday. The euro area’s January rate of 2.4 percent was the fastest since October 2008, skidding past the European Central Bank’s 2 percent target ceiling.

Higher inflation in the industrialized world has driven up central bank interest rates in Canada, and momentum built this week for the Bank of England to follow suit after the central bank forecast inflation will quicken from a two-year high and peak at about 4.4 percent.

More.

http://www.bloomberg.com/news/2011-02-17/g-20-stung-by-faster-inflation-as-paris-dispute-rages-on-global-imbalances.html

"We are in a world of irredeemable paper money - a state of affairs unprecedented in history."

John Exter

At the Comex silver depositories Thursday, final figures were: Registered 41.91 Moz, Eligible 60.64 Moz, Total 102.55 Moz.

+++++

Crooks and Scoundrels Corner.

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

Today China, and yet another sign that China doesn’t play by the rules of open trade. While the departing US Ambassador is an unlikely candidate to become the next President of the USA, after today’s rigged verdict, Beijing will be hoping that he doesn’t. I expect to see a long overdue hardening of attitude towards China in the capitals of Washington, London and Brussels, this year, as patience finally runs out.

"Power tends to corrupt and absolute power corrupts absolutely. Great men are almost always bad men."

Lord Acton.

U.S. Geologist Loses China Appeal on Secrets Charge

By Bloomberg News - Feb 18, 2011

A Chinese court rejected an appeal by a U.S. geologist jailed for eight years in July for breaching state secrets by buying data on the nation’s oil industry, his lawyer said.

The Beijing High People’s Court “upheld the verdict” of Xue Feng, lawyer Tong Wei told reporters outside the court. The administration of President Barack Obama and members of Congress have pushed for China to release Xue.

U.S. Ambassador to China Jon Huntsman, who attended the hearing, said he was “extremely disappointed in the outcome,” though it wasn’t unexpected. Huntsman said he was concerned over Xue’s health.

“We ask the Chinese government to consider an immediate humanitarian release of Xue Feng, thereby allowing him to get back to his family and his way of life,” Huntsman told reporters after meeting with Xue following the decision. Xue was “surprisingly stoic and strong” following the verdict, Huntsman said.

On Jan. 31 Huntsman, 50, a former Republican governor of Utah, announced he was leaving his ambassador’s post at the end of April amid speculation that he will enter the 2012 U.S. presidential race.

More.

http://www.bloomberg.com/news/2011-02-18/u-s-geologist-loses-china-appeal-on-state-secrets-charge.html

Another weekend, and our old familiar western centric world has never looked more unstable. Western placemen are toppling across the Middle East with great uncertainty as to what will replace them. China seeks a more assertive role in world affairs, but demonstrates at the same time just why it’s not fit to exercise that role. In the west, stagflation has arrived with the central banks powerless to tackle it, out of fear of triggering another crash. Stay long precious metals. Life as we knew it, 1945 to 2005 is over. Our debt driven, fiat currency, casino capitalism, financialised world of 1971 to 2008 crashed and is on QE life support. We have entered a very unstable world era. Time here in the south’s hills overlooking the Thames and Pang valleys, to enjoy the arrival of spring and just possibly tonight and tomorrow, enjoy the northern lights. Have a great weekend everyone

In a progressive country change is constant; ...change... is inevitable.

Benjamin Disraeli. 19th Century Prime Minister.

The monthly Coppock Indicators finished January:

DJIA: +161 Down 10. NASDAQ: +228 Down 10. SP500: +161 Down 4.

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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